The Wall Street Journal’s Linglin Wei scored a really nice interview this week with CIC Executive Vice President and Chief Risk Officer Wang Jianxi. Given that it’s quite rare to get any of the CIC’s nine member executive team ‘on the record’, I thought I should flag it up for readers. By way of background, Wang Jianxi is a PhD (in accounting) with extensive experience working in China’s financial services industry. For example, he was Deputy Chairman of Central Huijin and Chairman of China International Capital Corporation, which is one of China’s largest investment banking outfits, before joining CIC. In short: When Wang Jianxi is talking, we should all be listening. So without further ado, here are some deep thoughts by Wang Jianxi:
On the CIC’s funding mechanism: “CIC received the $30 billion at the end of last year from the State Administration of Foreign Exchange. We very much hope for a clear funding mechanism just like what other, more mature, sovereign-wealth funds have, such as the funds in Norway and Singapore. We’re working with certain government entities on setting up the mechanism.”
On CIC’s investment strategy: “CIC’s investments are broadly diversified by sector, geography and asset class. At the core of the investment strategy is an asset-allocation framework that currently consists of seven asset classes including stocks, bonds and private equity. Long-term investments including direct investments, private equity, infrastructure and real estate now account for more than half of the fund’s global portfolio.”
On CIC’s role (or lack thereof) in bailing out Europe: “CIC is a long-term, financial investor that pays close attention to risks. CIC won’t be part of any decision by the Chinese government to help Europe or not. The decision lies with China’s central bank [and] the Ministry of Finance via multinational and international mechanisms such as the European Financial Stability Facility and the International Monetary Fund...But if there are good investment opportunities in Europe, we will consider.”
On China’s reserve policy: “In a normal economic system, the private sector should be allowed to hold a big portion of the reserves, while the central bank should only hold what is needed to meet the balance of payments obligations.”
On CIC’s internal operations: “CIC restructured its corporate operations late last year. It created a unit, called CIC International, to solely focus on overseas investments. That unit is separate from Central Huijin. Both units operate as direct subsidiaries under the control of CIC...Central Huijin’s large stakes in state-owned Chinese banks had presented some regulatory obstacles for the fund when investing abroad. The reshuffle can help remove those hurdles.”
I thought the most interesting insight here was the scale of assets being put to work in illiquid asset classes, such as direct PE, infrastructure and real estate. Clearly, the CIC is shifting towards a long-term approach based more on strategic investments than the ‘traditional’ portfolios of liquid and short-term assets we see its peers focusing on. That’s interesting and, I think, quite smart.