♠ Posted by Emmanuel in China at 10/14/2008 11:01:00 AMI find it utterly unremarkable that China's sovereign wealth fund, the China Investment Corporation (CIC), has had $5.4B frozen in a money market account gone bad. Sometime ago, the Reserve Primary Fund caused much turmoil among money market funds when it "broke the buck" or had its net asset value (NAV) fall below 1.00. It turns out that it had invested in Lehman Brothers debentures--not a very wise move. Now, the Financial Times reports that the Reserve Primary Fund's largest institutional investor is none other than the CIC.
This is just the latest in a line of lousy investments from the PRC in general and the CIC in particular. Name a bad investment and China probably has it: heavy dollar allocation, $340B in Agency bonds, Flint--I mean Blackstone shares, Morgan Stanley shares, and now this Reserve Primary Fund. I've probably said this before, but if you're a budding hedge fund manager, you can't do much better doing the opposite of whatever China does for its "investing." Isn't the whole point of a sovereign wealth fund to preserve and enhance capital for future generations? Doubling down on your bets by investing in America seems like a surefire money loser to me. The results speak for themselves as the concept of "portfolio diversification" is lost on these guys. CIC better wish it gets a good amount of the fund's depleted capital. Then again, authoritarian regimes are usually immune to public criticism. Just don't let them get too many guns, I suppose
China’s $200bn sovereign wealth fund, which has made a series of loss-making investments in Western financial institutions since last year, could have as much as $5.4bn frozen in a failed US money market fund account.
A subsidiary of China Investment Corp was the biggest institutional investor in the $62bn Reserve Primary Fund, the first money market fund in 14 years to see its net asset value fall below $1 last month, according to US regulatory filings reported by agencies.
Stable Investment Corp, which is registered at the same address as the CIC office in Beijing and shares employees with the fund according to the reports, held 11.1 per cent of Reserve Primary’s shares, or around $5.4bn worth, at the start of September.
A CIC spokesperson declined to comment on ”market rumours” and refused to confirm that Stable Investment Corp, was a subsidiary of the fund. News of yet another disastrous investment by the sovereign wealth fund is likely to trigger public outrage and further strengthen a political backlash in China, where the government has refused to allow any major offshore financial sector investments this year.
CIC, which was established just over a year ago, invested $3bn in US private equity firm Blackstone and more than $5bn in Morgan Stanley last year, only to watch their shares drop more than 70 per cent since.
Until recently many investors considered money market funds to be almost as safe as bank accounts and before Reserve Primary, the oldest such fund in the US, only one small money market fund had ever ”broken the buck” by dropping below $1. Reserve Primary’s loss was triggered on September 16 when it was forced to value $785m worth of Lehman Brothers debt securities at zero in the wake of the investment bank filing for bankruptcy protection.
The fund was inundated with withdrawal requests and ended up releasing $10bn at $1 per share before its shares dropped to 97 cents and it froze redemptions, according to Bloomberg. It is now in the process of liquidating its assets and was expected to make an initial distribution of $20bn to remaining investors on Monday, according to reports...
Stable Investment, the CIC subsidiary, has also invested around $5.9bn in three other money market funds, according to documents filed with the SEC, Bloomberg reported. That includes $2.1bn in the Invesco Aim Liquid Assets Portfolio, $2.3bn in the JPMorgan Prime Money Market Fund and $1.5bn in Deutsche Asset Management’s DWS Money Market Trust.