China’s $1.3tn sovereign fund to invest in AI to power 'growth dividends’
China Investment Corporation (CIC) is positioning itself to strategically invest in artificial intelligence (AI) for its overseas portfolio, aiming to capitalise on the technological revolution, according to its latest annual report.
“At CIC, we are closely monitoring AI-related investment opportunities,” the sovereign wealth fund said in its 2023 annual report, released on September 27.
“We are strengthening our collaborations with top-tier investment managers and tracking industry trends. We aim to strategically pace our investments to capture the growth dividends of the AI era,” the report added.
CIC highlighted recent advancements in mobile technology, big data, supercomputing, sensor networks, and neuroscience, which have accelerated the development and application of AI technology.
“The emergence of generative AI in 2023 has opened up exciting investment frontiers,” CIC noted. The annual report’s special section on AI investments was included under the private market investments segment, following discussions on private equity and private credit investment strategies.
As of the end of 2023, CIC’s total assets under management (AUM) stood at $1.33 trillion, up from $1.24 trillion in 2022.
CIC doesn’t disclose the size of its overseas exposure, which is estimated at around 40% of the AUM.
Its domestic investments are managed by subsidiary Central Huijin, which holds long-term equity stakes in 19 state-owned financial institutions, including banks, insurance firms, and securities companies.
POSITIVE RETURN
In 2023, CIC's overseas portfolio recorded a 10-year cumulative annualised net return of 6.57%, outperforming its long-term benchmark by about 31 basis points.
Although CIC ceased disclosing the annual return on its overseas investments last year, Global SWF, a data platform tracking sovereign investors, estimated a 10.7% return in 2023, a significant rebound from an estimated -10.7% return in 2022.
“The results were mainly due to the recovery of US stock markets, which stand for 60% of CIC's equities portfolio,” Global SWF wrote in a report.
Last year, CIC ramped up its private market exposure to high-potential sectors including renewable energy and private credit, while “cautiously exploring” opportunities in emerging markets.
“Despite the slowdown in fundraising and deal activity, we continue to make calculated investments in private markets while steadily enhancing our capabilities in this area,” it said.
The fund expanded its alternative investments through strategic partnership accounts and co-investment accounts, while continuing to broaden its network of global partners.
Most recently, it launched a joint investment platform with Investcorp, targeting high-growth companies in sectors such as consumer, healthcare, logistics, and business services across the Middle East and China. The platform aims to raise $1 billion, with participation from other institutional and private investors.
CIC
CIC’s overseas portfolio allocation remained stable throughout 2023, with 48.3% in alternative assets, 33.1% in public equity, 16.6% in fixed income, and the remainder in cash and US Treasury Bills.
Due to fair value adjustments, the allocation to alternatives dipped slightly from 53.2% in 2022, when CIC first reached its 50% allocation target. Conversely, the global stock rally in 2023 increased the weight of stocks from 28.6% a year ago.
The fund welcomed a new chief investment officer Liu Haoling in February this year, following the retirement of former CIO Ju Weimin.
“In a context of market uncertainty and geopolitical pressure, CIC will have to keep evolving to be able to deploy capital overseas,” Global SWF observed.
EMBRACE AI
In recent years, China has been bankrolling big efforts on semiconductors and other advanced technologies amid geopolitical tensions with the US. Additionally, China has developed closer ties with Middle Eastern countries as they move away from the Western narratives.
With the global boom of generative AI since 2023, asset owners in Asia, including those in China, are actively exploring relevant investment opportunities as well as applications in their daily operations.
The newly established Hong Kong Investment Corporation, for instance, has announced several private market investment projects in AI this year. Dutch pension fund manager APG Asset Management’s Asia executive recently told AsianInvestor that it has adopted AI in its portfolio management as a “digital portfolio manager” for private market data analytics.
Adeline Tan, head of investment at Mercer Asia, noted that asset owners generally access AI-themed investments through their current investment strategies, with listed equity being more accessible compared to the complexity of alternatives.
“As the hype around AI starts to stabilise, there is also learning among investors on the actual commercialisation of AI impacting corporate earnings and corporate growth,” she told AsianInvestor.
So far, she observed that Asian asset owners do not exhibit a home bias towards AI investments. Instead, they invest where the technology is and where there are proven track records of applying AI in a business context.
“Knowledge and understanding of the AI supply chain will help investors uncover more new sectors or industries that can emerge on the foundation of solid application of AI,” she added.
Since AI has evolved from large language programs that have been around for over 30 years, Tan suggested that asset owners consider working with asset managers who have incorporated AI into their stock selection considerations. Also, they could collaborate with managers who seek out companies adept at incorporating new technology into their business operations.