China's Sovereign Wealth Fund in Big 2012 Turnaround
China Investment Corporation (CIC), the world's biggest sovereign wealth investor said 2012 was a much better year for the $482-billion fund, with returns of over 10 percent.
"2012 was a much easier year than 2011 and the returns are much better," Chairman and Chief Executive of CIC, Lou Jiwei told CNBC on Monday. "[T]he final numbers have not come out…but we are confident our returns will be over 10 percent."
Double digit returns would be a big turnaround for the fund, which suffered its first ever decline in profits in 2011. Net profit declined 6.1 percent in 2011 to $48.4 billion compared to 2010.
Performance was affected by losses in its stock holdings as rising oil prices, Japan's tsunami disaster, Europe's debt crisis, and the U.S.credit rating downgrade that rocked markets in 2011. The fund also reported a 4.3 percent decline in returns on overseas investment in 2011, its worst-ever performance since it started publishing annual reports in 2008.
CIC's Chairman said the fund had changed its tactics in 2012, though he didn't elaborate.
"We had to change our tactics because we observed more volatility in the market - especially volatility that is created by policies and this really hampered the return prospects," Jiwei added.
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The company has also expanded into the private equity sector over the last two years in a strategy to achieve higher returns and take direct stakes in companies. It doubled its investment in private equity, direct investments and hedge funds in 2011 to 43 percent of its portfolio, compared with 2010.
The chief executive said that the U.K and Canada were the most welcoming of Chinese investment, "but the U.S. is not the same."
Europe, which had once "resisted" foreign investment, had changed its tune as its circumstances had worsened, Jiwei told CNBC. Indeed, Europe has assiduously courted Chinese investment of late, with the French finance minister being the latest emissary to Beijing to drum up Chinese investments.
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CIC has invested heavily in Europe but in mid-2012 stopped buying European government debt on concerns over the euro zone financial crisis and began focusing more on private equity and infrastructure projects to boost returns.
According to recent reports, CIC has shown an interest in buying a stake in German carmaker Daimler, though Daimler has refused to comment on "media speculation" over a deal.
Buying a stake in the automobile maker would further solidify CIC's strategy of making direct investments in European companies, rather than invest in the region's sovereign bonds.