China's sovereign wealth fund targets a modest single-digit rate of return and has adopted investment policies that are more akin to large public pension funds, according to China Investment Corporation's (CIC) Vice-President and Chief Risk Officer Wang Jianxi.

Wang said the CIC's new investment policies "define" the fund as a "large public pension or endowment fund" with eyes set on long-term goals rather than short-term gains for the large sum under its management.

Speaking at the Credit Suisse Asia Investment Conference luncheon yesterday in Hong Kong, Wang said CIC is "conservative" and aims at a prudent mid-single-digit rate of return. The chief risk officer said as long as CIC performs better than the foreign reserves in the long run, it will have achieved its mandate.

Endowed with a $200 billion portfolio, CIC was set up in September to generate better returns for the country's mounting foreign exchange reserves that now exceed $1.5 trillion.

"The return target of CIC is reasonable if it takes the exchange rate into account," said Ronald Wan, managing director of BOCOM International. Wan said in order to achieve the mid-single-digit return amid the sickly US dollar, CIC will have to realize more than 10 percent in investment return.

Wan said that unlike other sovereign wealth funds, CIC has spent two-thirds of its portfolio in recapitalizing the domestic banking system by injecting billions into China Development Bank and Agricultural Bank of China.

Wang said these moves are policy decisions by the government rather than commercial ones, leaving the CIC with approximately $75 billion to invest overseas.

In its first six months, CIC has made several high-profile investments including a $3 billion investment in US private equity Blackstone Group and a $5 billion investment in Morgan Stanley.

But market conditions have not been favorable for CIC's initial ventures. It's estimated that CIC suffered a 48 percent loss in its Blackstone investment as of March.

Wang admitted the investments are not doing well, adding that several investments in IPOs are performing sluggishly as well. Lack of experience with a huge amount is one of the biggest challenges that CIC faces, Wang said.

(China Daily April 3, 2008)