Reported CIC reshuffle raises questions

A fresh reshuffle is reportedly underway at China’s sovereign wealth fund CIC, with general manager Gao Xiqing retiring and chief investment officer Li Keping succeeding him, according to media.

At 60, Gao’s retirement would not be a surprise, but his exit could raise questions over possible changes in CIC’s investment direction and reliance on external managers, notes Shanghai-based consultancy Z-Ben Advisors.

Reports of the switch follow the appointment of Ding Xuedong as the fund's chairman in July last year, as reported.

Still, Li himself is 58 years old and has a long history of working with Gao, dating back to their days at the National Council for Social Security Fund (NCSSF). This, Z-Ben suggests, may point to a continuation rather than a change of strategy.

Gao served as NCSSF’s vice-chairman from 2003-07 while Li served as investment director. After Gao left CIC in 2007, Li took over as NCSSF vice-chairman until 2011, when he transferred to CIC as deputy general manager and CIO.

“During his time at the SWF, Dr Gao worked to establish an institutionalised organisation, ensuring that investment decisions and the process would not be heavily factored or influenced by one individual,” says Z-Ben.

But the consultancy highlights the priorities that Li would have if reports of his succession are true. Chief among them would be some form of a consistent funding mechanism, along with dampened volatility in investment performance.

Since inception in September 2007 CIC has recorded a lows of -2.15% in 2008 and -4.3% in 2011, sandwiched with an 11.7% return in both 2009 and 2010. In 2012 it also reported a positive 10.6% return amid a revised focus on private equity and long-term allocations.

For the time being, Z-Ben says it expects ad hoc funding to the sovereign fund to continue, with the level of injections contingent on improvements in investment performance.

“However, CIC will require a clear funding mechanism before additional expansions can be made to its investment scope,” it reports.

That said, Z-Ben raises the possibility of a little-discussed funding alternative: a redeployment of capital from the divestiture of certain Central Huijin assets.

It describes the sale of non-core, non-strategic assets at CIC as “a rather unique solution”, but highlights several examples over the past six months and says it expects more deals to be struck.

“For the global asset management community and those firms running mandates on behalf of CIC, expect the departure of Dr Gao to have little, if any, impact to their relationships in the near term,” the consultancy adds.

CIC has seen its assets under management grow 74% since 2009 to stand at $575 billion as at the end of 2012, the latest available figure.

CIC could not be reached for comment as AsianInvestor went to press, while no announcement on the change had been made on the fund's website.