China Investment Corp (CIC), the country's $200 billion sovereign wealth fund, has signed a
deal with J.C. Flowers & Co, to launch a $4 billion private equity fund to focus on investments in U.S. financial assets despite increasing worries over the snowballing credit crisis, a source briefed on the situation said on Thursday.
Beijing-based CIC will become a limited partner of the new private equity fund, in which CIC will provide about 80 percent of contributions to the fund, the source said.
New York-based private equity firm J.C. Flowers, run by former Goldman Sachs banker Christopher Flowers, will offer about 10 percent of the money to the fund, said the source who declined to be identified as he was not authorized to speak to the media.
There will be also several other general partners who will cover about 10 percent of capital in the fund, the source said, adding general partners have already been selected.
Representatives of CIC and J.C. Flowers could not immediately be reached for comment.
It will be the first private equity fund to be launched by CIC since it was established by the Chinese government in late 2007, part of Beijing's plan to diversify the investments of its huge foreign exchange reserves and to seek better returns from global markets.
The deal, which also makes J.C. Flowers the first overseas private equity fund manager appointed by CIC, came after several months of negotiations between the two firms and J.C. Flowers eventually agreed to accept "tougher than usual" conditions for the partnership, the source said.
Usually, private equity fund managers may be asked to contribute only a symbolic 1 or 2 percent of the capital to a new fund.
CIC required J.C. Flowers to invest more money in the fund with the aim that it share more responsibility and risk of the investments, the source said.
The new fund will be run by J.C. Flowers, while CIC will not be involved in regular management though it will be briefed by J.C. Flowers on some significant investments in advance, said the source.