China moves back onto global investment stage
Like many other institutional investors, China's sovereign fund pushed much of its asset base into cash during the market downturn. That hurt the hedge funds where much of that money had been placed and industries that the Chinese had begun to invest in around the world.
China is beginning to deploy large amounts of capital from China Investment Corp. (CIC) again. The fund has about $300 billion in assets. According toBloomberg, China Investment has committed "many times" the $500 million that CIC was reported to have placed in hedge funds and private-equity firms in June.
The change of heart is an important one, and not just for money managers. CIC put money into a number of financial institutions in the West only to see a great deal of it lost in the financial collapse last year. It now appears that the wounds that came with those investments are no longer holding the Chinese back.
The news about CIC is part of a larger, and not entirely welcome, phase of China placing investment capital overseas. Recently, an attempt by the Aluminum Corp. of China (known as Chinalco), backed by central government money, to buy a fifth of Rio Tinto (NYSE:RTP) was rebuffed, causing tension between the mainland and Australia. China has had more success in the oil and gas sector. It recently loaned Brazilian oil giant Petrobras $10 billion for its important off-shore drilling program China has also shown interest in oil production in Iraq.
China is using the recession to buy assets that are less expensive than they would be in normal economic conditions. It is likely driving hard terms on the fees it pays to hedge funds as well. In an era when capital is scarce, big money can, to some extent, make its own rules.
There are growing concerns about what China's overseas strategic aims are as its places more capital outside its borders. But, many institutional money managers and developing countries don't care. Cash is cash..
Douglas A. McIntyre is an editor at 24/7 Wall St.