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China sovereign wealth fund CIC profit drops 17%

[BEIJING] China's sovereign wealth fund China Investment Corp (CIC) reported a 17 per cent decline in net profit last year, its lowest profit since 2011, hit by negative returns on overseas investments and huge foreign exchange losses, it said on Friday.

Net profit was US$73.9 billion in 2015, down from US$89.1 billion a year earlier, the fund said in the annual report posted on its website.

CIC's return on overseas investments declined to a negative 2.96 per cent last year, compared with a positive 5.47 per cent return in 2014.

CIC also reported a record foreign exchange loss of US$3.77 billion last year.

A sluggish global economic recovery, severe fluctuations in global financial markets and increasingly fierce competition in the investment industry made 2015 "a challenging year" for the fund, said Ding Xuedong, chairman and CEO of CIC.

CIC's net cumulative annualised return was dragged down to 4.58 per cent at end-2015, from 5.66 per cent a year earlier, the fund said.

CIC was founded in 2007 as a wholly state-owned company to help China earn a higher return on its massive foreign exchange reserves, which were at US$3.21 trillion in June.

The fund invests overseas through two subsidiaries, CIC International Co and newly-launched direct investment vehicle CIC Capital Corp.

At its annual earnings briefing, CIC spokeswoman Liu Fangyu told reporters that the fund's worst performance in four years was caused mainly by falling commodity prices, low investment returns on stocks and bonds in a low interest rate environment, and major foreign exchange losses.

About 47 per cent of CIC's global portfolio was invested in stocks in 2015, about 14 per cent in fixed-income, nearly 13 per cent in absolute return, and about 22 per cent in long-term investments, it said. Only about 3 per cent was held in cash.

Absolute return investments are intended to be profitable in both rising and falling markets.

CIC ramped up its investment in real estate and infrastructure last year. The fund so far has made more than 40 property investments in North America, Europe, Asia and Oceania.

Mr Ding said 2016 was expected to be "another year of sluggish growth, coupled with subdued inflation, low productivity and lacklustre trade".

Diverging policies in major economies were also making institutional investors' long-term return objectives more difficult to achieve, he added.

The fund managed more than US$810 billion in assets as at end-2015, up from US$740 billion at end-2014.

It is also a major shareholder in China's biggest banks via its Central Huijin Investment Ltd subsidiary.