China's SWF Gets Defensive

In China, China Investment Corp. (CIC) is feeling the heat for the decisions it has made to invest in some U.S. financial firms, including Morgan Stanley and private equity firm Blackstone Group, that have performed poorly.

Abroad, it has faced criticism from politicians and others, mainly in the United States and Europe, that are concerned that its investments could be politically motivated and about what some see as a lack of transparency.

"CIC is one of the most transparent sovereign wealth funds in the world." --Jesse Wang, chief risk officer, China Investment Corp.

At a recent Credit Suisse fund manager conference in Hong Kong, Jesse Wang, CIC's executive vice president and chief risk officer, delivered a frank defense of criticism from both sides, according to a report by Reuters.

"CIC is one of the most transparent sovereign wealth funds in the world," Wang told the fund managers. "There are lots of hypothetical threats, but those arguments are very weak. The reality is that we're facing rising nationalism and protectionism. That's not just because of sovereign funds but also because of globalization," he continued.

In response to concerns that CIC has made some poor decisions, particularly in investing in troubled U.S. firms, Wang was candid in his admission that the fund was still somewhat inexperienced and learning from its mistakes. However, he said it would continue at a measured pace. "We think we're quite conservative at this time. I think [the target rate of return] is about mid-one-digit, or slightly above one digit," Wang said.

Of CIC's $200 billion in initial assets, about $70 billion to $80 billion will be invested overseas, mostly indirectly through funds, Wang said, while a small amount will be invested directly, according to the Reuters report.