Investing a nation's wealth wisely

Different role

Last year was the fifth anniversary of its establishment and at that time the fund's board of directors reviewed and approved its 2012-16 Strategic Plan of Development, which outlines the guidelines for the CIC's overseas investment. During the meeting, the directors decided to extend the investment horizon to 10 years and adopted rolling annualized returns as an important benchmark to evaluate the performance.

Ding, the current chairman and former deputy secretary-general of the State Council, says the CIC zeroed in on the endowment model of asset allocation after looking at several such models in the past five years.

"We have developed the policy portfolio to better align and balance our strategic and tactical asset allocation, and to improve portfolio integrity, boost fiscal discipline and for prudent management."

In 2011 the company suffered a loss of 4.3 percent on its overseas investment projects, compared with a profit of 11.7 percent in 2010, raising serious doubts over its investment measures and risk control system.

A research note from Zero Power Intelligence Co Ltd, a Chinese market research firm, indicates that the CIC's returns are directly related to the performance of the global financial market. The loss in public equities and direct investment projects was the main reason for the CIC's negative return in 2011, when the MSCI World Index dropped 7.4 percent, the research note said.

The sovereign wealth fund was launched in September 2007 with registered capital of $200 billion. Of this, $90 billion was transferred to domestic financial institutions through the CIC's wholly-owned subsidiary Central Huijin Investment Co Ltd, while the balance $110 billion went for overseas investment.

Liu Shangxi, deputy director of the Research Institute for Fiscal Science under the Ministry of Finance, says that unlike other sovereign wealth funds, the State Council has clearly specified the duties and functions of the CIC. "The main task of the CIC is to manage the foreign exchange given by the central government and use it on behalf of the state to invest in overseas markets," Liu says.

About 49.2 percent of equity purchases have been from the US markets, compared with 27.8 percent in other advanced economies and 23 percent in emerging markets, the CIC annual report said. In addition the CIC has invested 22.3 percent of its fund in the overseas financial sector, while 11.6 percent is in the information technology sector and 10.7 percent in the consumer discretionary industry, it said.