CIO exit seen unlikely to alter Safe allocations

The departure of the chief investment officer of China’s State Administration of Foreign Exchange is unlikely to affect the organisation’s plans to diversify assets and invest offshore, analysts say.

Zhu Changhong, who oversees the investment of China’s foreign exchange reserves, will reportedly leave his post at the end of this month.

He has been CIO at Safe since 2010. The fund has reportedly confirmed his departure, but did not respond to AsianInvestor requests for comment.

Zhu has been credited for helping to diversify Safe’s $3.8 trillion in FX reserves from US Treasury bonds into corporate bonds, stocks and real estate, as well as Japanese stocks and bonds.

This is a rising trend among Chinese state investors and those in other countries.

“Recently, there has been a reshuffling in the senior management of China’s sovereign wealth funds,” says Zhang Howhow, research director at Shanghai-based consultancy Z-Ben Advisors. In the short run, he notes, the consensus is that the country’s SWFs will continue to increase overseas investments.

However, Zhang says there is evidence that Chinese state funds are becoming increasingly sophisticated in their investment approach. China Investment Corporation – often used as a gauge for Safe’s asset allocation plans, given that CIC is more visible – has raised its long-term direct exposure to overseas infrastructure, energy and mining.

Zhang suggests fund managers may need to offer more diverse strategies to mainland SWFs, such as multi-asset funds, in order to capture some of the allocations.

“Previously, they usually give out mandates according to asset class. But now, they are becoming more sophisticated [and] may look into different strategies,” he adds.

Before joining Safe, Zhu worked at Pimco, the world’s largest fixed income asset manager, from 1999, and before that he was with Bank of America.

Safe, the world’s largest currency reserves manager, has expanded its offshore operations in recent years, presumably with a view to further diversifying its portfolio.

It opened an office in New York in May, reportedly staffing the Fifth Avenue digs with 12 people, mostly analyst and researchers focused on meeting fund managers and bankers to collect data to feed back to its Beijing headquarters. It also has offices in Hong Kong, London and Singapore.