China CIC sheds $111bn in assets after 2022 investment losses

Sovereign wealth fund China Investment Corporation's total assets under management dropped to $1.24 trillion at the end of 2022. But, it still managed to achieve its 50% alternative asset allocation target for overseas investments.
China CIC sheds $111bn in assets after 2022 investment losses

One of the world’s largest sovereign wealth funds, China Investment Corporation (CIC) recorded a $111 billion drop in its total assets under management (AUM) after suffering investment losses in 2022, according to its latest annual report released on December 1.

The report showed that CIC’s AUM slumped to $1.24 trillion at the end of 2022, from $1.35 trillion in end-2021. As a result, the annualised cumulative 10-year net return dropped by 2.3 percentage points to 6.43% as of the end of 2022 from 8.73% a year earlier. Nonetheless, the return still beat the 10-year performance target CIC sets by 26 basis points.

Notably, the sovereign wealth fund also achieved its 50% allocation target in alternative assets for its overseas portfolio in 2022. The weighting hit 53.2%, which marks a significant 6.2-percentage points increase from 47% in 2021.

Peng Chun, CIC

“All of the primary objectives and targets set out in the China Investment Corporation Strategic Plan 2018-2022 were successfully accomplished,” noted Peng Chun, chairman and chief executive officer of CIC.

This is the first time since its inception in late 2007 that CIC didn’t include its overseas investment return in the annual report. In 2021, CIC recorded a 14.27% overseas investment return. The annualised cumulative return since its inception was 5.94% as of end-2022.

The fund does not disclose the investment return of its domestic holdings, which accounted for around 60% of total AUM, and are managed by subsidiary Central Huijin Investment. The capital goes into shares of 18 Chinese financial institutions, including state-owned banks, securities companies, and insurance companies.

In 2022, CIC's investment fair value losses, totaling $51 billion, contributed significantly to the fund's slide in asset values. Its cash and deposit assets also dropped by $34 billion, while its long-term equity investments decreasing by $15.8 billion in assets.

Source: CIC

The year 2022 proved challenging for most global sovereign wealth and pension funds as widespread investment losses occurred alongside slumps in both equity and bond markets worldwide. For example, the Norwegian Government Pension Fund Global suffered an investment loss of 14.1%, or 1.64 trillion kroner ($153 billion) in 2022, while Korea Investment Corporation returned -14.36%.

“From 2022 onwards, there has been a significant increase in global geopolitical risks, alongside the ongoing reconfiguration of industrial supply chains, aggressive interest rate hikes by the American and European central banks, and severe volatility in international capital markets,” Peng noted in the annual report.

Peng quoted the MSCI All-Country World Index and Bloomberg Global Aggregate Bond Index, which plummeted over 22% and 13%, respectively in 2022.

He said CIC maintained its strategic focus and capitalised on its advantages as a long-term institutional investor and delivered market-beating annual investment returns in 2022.

CIC remains the world’s second-largest sovereign wealth fund based on most recent AUM, while Norwegian Government Pension Fund Global managed by Norges Bank Investment Management (NBIM) is the largest with 15.9 trillion kroner ($1.47 trillion) in assets as of Monday.

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According to the annual report, CIC actively repositioned its portfolio several times in 2022 to enhance its defensive position, effectively reduce total portfolio risk by capturing market opportunities, and also optimise the operation and management of the tail-risk hedging portfolio.

By asset class, CIC's offshore public equity exposure dropped to 28.6% of total overseas assets in 2022 from 35.4% in 2021, and its global fixed income positions went down to 14.9% from 15.4% in 2021. Cash products and US Treasury Bills’ allocation was up by one percentage point to 3.25% in 2022.

Source: CIC

In 2022, CIC also increased the externally managed portion of overseas investments by 1.62 percentage points to 63.3%, reflecting its highest level of outsourced assets. 

Within offshore stock markets, CIC's allocation to US equities declined 2.3 percentage points to 59.18%, while exposure to other developed markets rose 1.42 percentage points to 26.81% and emerging markets and others increased to 14.01% from 13.13%.

In the private market, CIC said its overseas alternative asset investments have yielded favourable results in terms of capturing illiquidity premia, stabilising portfolio returns, and hedging against inflation, which helped to buffer the portfolio against market volatility.

In particular, besides the usual “demographics, technology, sustainability” theme that CIC has been focused on in real estate investment, it also started to pay attention to logistics property, rental apartments, and other segments that can offer inflation protection.

In infrastructure, it also has been conducting sectoral research around energy transition, energy storage, data centres, and regulated assets to fine-tune its investment priorities and rebalance allocations across geographies and sectors.

On the back of a strong commodity cycle, CIC also exited some energy and resources investments, while continuing focusing on energy security-related opportunities amidst intensifying geopolitical risks.

This article has been updated with additional details about CIC’s portfolio in the last 5th and 6th paragraphs .

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