FT BeyondBrics: China’s CIC: change of the guard

FT BeyondBrics, May 13 2013

There is a new man at the top of the China Investment Corporation (CIC), China’s sovereign wealth fund, prompting debate about whether the change in personnel will also mean a change in approach.

Lou Jiwei (pictured), who is still listed in CIC’s website as chairman and chief executive officer, became China’s finance minister in March. His successor has not been formally named but it has been locally reported that he is Tu Guangshao, the executive vice mayor of Shanghai.

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CIC itself did not immediately respond to queries from beyondbrics and no announcement has been made.

CIC was founded in 2007 and had US$482.17bn under management at the end of 2011, the latest disclosed figure, including assets held through its Central Huijin subsidiary, which holds stakes in China’s domestic banks.

Since 57 per cent of CIC’s global investment portfolio is outsourced to external asset managers, and since CIC’s assets are expected to continue to grow through injections of capital from China’s vast foreign reserves, any chance of management is of considerable interest to the world’s investment community.

“Lou Jiwei’s move caused considerable chatter throughout the asset management industry, with many speculating on who would become the new chairman and what such a new head might mean for potential mandate holders,” says Francois Guilloux, director at Z-Ben, an asset management analysis group in Shanghai.

Tu’s appointment, he says, “may come as something of a surprise to many industry watchers,” but “the appointment appears primarily political, and day-to-day operation of the fund is unlikely to change.”

The actual management of the fund is believed to be chiefly the responsibility of Gao Xiqing, who is listed on the CIC site as President and Vice-President but who is now thought to serve as CEO.

Gao tends to be the public face of the fund internationally and is said to be the man most closely involved in the fund’s key deals.

So what can we learn from Tu’s appointment, assuming it is confirmed? As well as being vice mayor of Shanghai since 2007 (the ‘executive’ title was added earlier this year), he is a member of the Communist Party of China’s Shanghai Standing Committee, and has held roles across the Chinese financial services world, including General Secretary of the China Securities Regulatory Commission, General Manager of the Shanghai Stock Exchange, and a deputy director role at the People’s Bank of China, the central bank.

This range of experience, combined with Communist Party committee membership, generally marks somebody being groomed for greater things.

“Mr Tu was responsible for fiscal affairs, taxation, financial development, supervision of foreign affairs and management of legislative bills” in Shanghai, Z-Ben said in a note to clients. “All eyes will be on Mr Tu during his first few months as head of CIC, as observers are likely to look closely for any signs that indicate Central Huijin’s fate as well as a more stable future funding mechanism for the SWF.”

The Central Huijin stake is something of a distortion to CIC’s assets and accounts; everything else apart from that subsidiary must be invested internationally, in the manner of sovereign wealth funds worldwide, while Central Huijin itself is static, with accounts in renminbi, and is excluded from data CIC discloses about its asset mix.

There have long been discussions about the stakes in mainland banks either being sold or transferred to another entity, simplifying CIC’s mandate, accounting and general appearance.

Fund managers said they expected little change in the availability of external mandates. “What you tend to find is that new sovereign funds start out by outsourcing a great deal, then begin to develop the expertise internally and start bringing the easier stuff in-house,” said one, citing the example of the Korea Investment Corporation. “We’re still in the period where a lot is being outsourced but in years ahead you’re likely to need to offer something a bit different to the herd to get noticed.”