China’s ‘invisible man’ quits forex role

Simon Rabinovitch

The "invisible man" who held one of the world's most important investment jobs for the past four years in leading the diversification of China's foreign currency wealth has resigned.

Zhu Changhong had been the chief investment officer for the State Administration of Foreign Exchange, the agency that manages China's $3.8 trillion mountain of foreign exchange reserves. He left a starring role at Pimco, the world's largest bond house, to join SAFE in late 2009 and is now expected to return to the private sector, according to two people familiar with his decision.

(Read more: Why a China shadow banking crisis sparks fear)

Trained as a physicist, Mr Zhu earned the "invisible" moniker for his extreme reluctance to make public appearances. He has never given any media interviews, and the only photos of him online are a grainy picture from his student days and an unidentified shot from the time of his return to China.

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But while operating in the shadows, the impact of Mr Zhu, 44, on the management of China's foreign currency riches has become increasingly clear.

SAFE has moved away from the US dollar to a broader range of currencies. It has also shifted away from US government bonds, which used to dominate its portfolio, investing more in corporate debt, in private equity and even in property.

The portion of dollar assets in China's reserves fell to 49 percent as of the end of June 2012 – the most recent detailed figures – down from 69 percent three years earlier, before his arrival, according to an analysis of US Treasury data.

(Read more: Are China shadow banking woes exaggerated?)

China Business News, the local newspaper that was the first to report Mr Zhu's departure from SAFE, cited industry insiders as saying that he had perfectly timed the surge in the Japanese stock market over the past year.

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SAFE's more aggressive investment stance under Mr Zhu has also allowed the agency to overshadow China Investment Corp as the primary vehicle for diversifying the country's foreign currency holdings. CIC had been established in 2007 as China's official sovereign wealth fund and was given a specific mandate to earn a higher return on the country's bulging foreign exchange reserves.

But the central bank, which controls SAFE, has long been uncomfortable with handing money over to CIC because the fund operates under the auspices of the finance ministry. As a result, it has fought to keep the vast bulk of the reserves in SAFE's hands, transferring less cash to CIC than had been expected. Mr Zhu's strong investment record was seen as helping to justify that stance.

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Mr Zhu, who holds a doctorate in physics from the University of Chicago, worked at Bank of America before joining Pimco in 1999. He led Pimco's derivatives desk and also managed a series of hedge funds for the bond house before moving back to China.

His departure from SAFE is the second major personnel change for China's sovereign wealth funds in recent days. Last week, people familiar with the matter told the Financial Times that Gao Xiqing, the founding president of CIC, was set to step down.

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