China Builds Sovereign Wealth Fund
"It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds. "
Samuel Adams, 1722-1803, American revolutionary
In a recent Reuters news article, it was reported that a soon-to-be created Chinese investment arm and state organization is in talks with Dubai's Maktoum family's investment agency called Dubai World. They are apparently looking to co-coperate on joint investment opportunities.
Chinese FX coffers are now overflowing with dollar reserves amounting to a record US$1.2 trillion by the end of 1Q07. To placate pressure on their own currency and to deal with the "embarrassment of riches" China is looking to quickly graduate into a global investment powerhouse using this cash war-chest. This is the goal of China's State Foreign Exchange Investment Cooporation.
It follows the surprising news in June 2007 that the same Chinese organization was taking a 10% stake in the U.S. private equity shop Blackstone for a reported US$3 billion. As one of the foremost private equity shops the Chinese will probably learn quite a lot about how to buy into large companies - something that they had previously failed to do, particularly in relation to the most recent purchase attempt of Unicol the U.S. energy conglomorate back in 2005. That certainly set off "national security" overtones to the debate.
It appears that China has looked at some other organizations which are correctly identified as SWFs or "Sovereign Wealth Funds". According to Morgan Stanley these SWFs control close to 2.5% of global financial assets and in 10 years this could rise to 10%. The same type of State run investment model is currently followed in slightly different forms by other countries in the Middle East and Asia fueled by oil cash inflows and/or FX reserves. You can add Russia with its Stabilization Fund to this growing list.
The Chinese model is typified by GIC and Temasek of Singapore which has broad investment powers across traditional and alternative asset classes with the bulk of assets in real estate and private equity. Both manage assets of US$100 billion and US$84 billion respectively. GIC has approximately 20% of its portfolio invested in hedge funds, private equity, real estate and commodities.
Other recent high profile activities by SWFs included: 2007 Delta Two, controlled by Qatari Royal family which bought 25% of U.K food chain Sainsbury; 2006, Dubai Ports World (part of Dubai World) which bought shipping conglomorate P&O group for US$6.8billion; 2006 Temasek (controlled by Singapore government) acquired Shin Corp, the Thai telecommunications group; and 1988 Kuwait Investment Office which purchased a 22% stake in the U.K listed oil group BP.
This is a natural process and could quickly put China near the top of the ranks of investable AUM (together with a few oil-rich Gulf states, GIC and Japan's postal service). It will also inevitably lead to even more liquidity hitting the global markets fuelling even more talk of bubbles, asset price inflation and the like. Perhaps too, it will serve as an early sign that the next highest paid investment bankers will be those catering to the Chinese government in terms of offering preferential deal flow in return for ther recycled-U.S. dollars.
As Asian pride, and in particular Chinese pride and quasi-nationalism takes root you can look for entities like CITIC (a Chinese state-financed hedge fund) to get more support and experience testing newer markets and strategies. Who knows? More ties ups and purchases of "western expertise" might be on the way including hedge fund of fund shops, VC shops and real estate firms.
In the chase for these riches it is no doubt on many hedge fund and hedge fund of fund manager's agenda to consider opening up an office in Shanghai or better yet Beijing. I would not be surprised to hear of office openings in coming months.
Mahalo.
"It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds. "
Samuel Adams, 1722-1803, American revolutionary
In a recent Reuters news article, it was reported that a soon-to-be created Chinese investment arm and state organization is in talks with Dubai's Maktoum family's investment agency called Dubai World. They are apparently looking to co-coperate on joint investment opportunities.
Chinese FX coffers are now overflowing with dollar reserves amounting to a record US$1.2 trillion by the end of 1Q07. To placate pressure on their own currency and to deal with the "embarrassment of riches" China is looking to quickly graduate into a global investment powerhouse using this cash war-chest. This is the goal of China's State Foreign Exchange Investment Cooporation.
It follows the surprising news in June 2007 that the same Chinese organization was taking a 10% stake in the U.S. private equity shop Blackstone for a reported US$3 billion. As one of the foremost private equity shops the Chinese will probably learn quite a lot about how to buy into large companies - something that they had previously failed to do, particularly in relation to the most recent purchase attempt of Unicol the U.S. energy conglomorate back in 2005. That certainly set off "national security" overtones to the debate.
It appears that China has looked at some other organizations which are correctly identified as SWFs or "Sovereign Wealth Funds". According to Morgan Stanley these SWFs control close to 2.5% of global financial assets and in 10 years this could rise to 10%. The same type of State run investment model is currently followed in slightly different forms by other countries in the Middle East and Asia fueled by oil cash inflows and/or FX reserves. You can add Russia with its Stabilization Fund to this growing list.
The Chinese model is typified by GIC and Temasek of Singapore which has broad investment powers across traditional and alternative asset classes with the bulk of assets in real estate and private equity. Both manage assets of US$100 billion and US$84 billion respectively. GIC has approximately 20% of its portfolio invested in hedge funds, private equity, real estate and commodities.
Other recent high profile activities by SWFs included: 2007 Delta Two, controlled by Qatari Royal family which bought 25% of U.K food chain Sainsbury; 2006, Dubai Ports World (part of Dubai World) which bought shipping conglomorate P&O group for US$6.8billion; 2006 Temasek (controlled by Singapore government) acquired Shin Corp, the Thai telecommunications group; and 1988 Kuwait Investment Office which purchased a 22% stake in the U.K listed oil group BP.
This is a natural process and could quickly put China near the top of the ranks of investable AUM (together with a few oil-rich Gulf states, GIC and Japan's postal service). It will also inevitably lead to even more liquidity hitting the global markets fuelling even more talk of bubbles, asset price inflation and the like. Perhaps too, it will serve as an early sign that the next highest paid investment bankers will be those catering to the Chinese government in terms of offering preferential deal flow in return for ther recycled-U.S. dollars.
As Asian pride, and in particular Chinese pride and quasi-nationalism takes root you can look for entities like CITIC (a Chinese state-financed hedge fund) to get more support and experience testing newer markets and strategies. Who knows? More ties ups and purchases of "western expertise" might be on the way including hedge fund of fund shops, VC shops and real estate firms.
In the chase for these riches it is no doubt on many hedge fund and hedge fund of fund manager's agenda to consider opening up an office in Shanghai or better yet Beijing. I would not be surprised to hear of office openings in coming months.
Mahalo.
posted by Franklin Scruggins | 1:35 PM
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