Turf battle of Sovereign Weath Fund

FT
Chinese fund’s form gives it edge in turf war
http://www.ft.com/cms/s/0/bb9f6e34-ee88-11de-944c-00144feab49a.html
"Only a year ago, Beijing pundits were betting on how long it would take for the management of China Investment Corp, the country’s sovereign wealth fund, to lose their jobs.
The fund appeared to be paralysed by the financial crisis. Its reputation was also in tatters after its initial high-profile, loss-making investments in Morgan Stanley and US private equity firm Blackstone.
Now, in a stunning turnround, the fund has performed so well by most accounts over the past year that speculation in Beijing this winter centres on the timing and size of another cash injection for CIC from China’s $2,273bn in foreign exchange reserves.
People who deal closely with the fund say they are impressed by the maturity and capability of an organisation that has barely existed for two years and is the subject of much political infighting and international scrutiny.
“They’re certainly acting as if they’re about to get more money,” says a person who works closely with the sovereign wealth fund. “They have had two years of growing pains building their network, their trading desk and setting up the back office systems, but now they have an aggressive and impressive team in place and are ready to ramp up investments.”
People close to CIC say that by performing so well the fund has gained the upper hand in a bitter turf war with the State Administration of Foreign Exchange , the organisation that manages the bulk of the country’s reserves, and is believed to have lost billions in public and private equity markets after it tried to emulate the more aggressive investment style of the newly-established CIC.
“CIC is a highly political place with international bankers tripping over each other to get in the door and tell them how great they are,” says another person close to the fund.
“What’s most impressive is that with such a small staff they’ve managed to separate the wheat from the chaff and make smart investments.”
The fund has boosted its staff to about 400 people, including 180 working in Huijin, the fund’s domestic arm which holds controlling or sizeable stakes in most of the country’s largest banks and other financial institutions.
Below Lou Jiwei, CIC chairman, is a team of experienced Chinese professionals who include Gao Xiqing, chief investment officer, and Jesse Wang, chief risk officer. Most have worked both on Wall Street and within the Chinese bureaucracy.
One of these is Hu Bing. An intense, intelligent man who was educated in the US and worked for the now-defunct Lehman Brothers, Mr Hu returned to China earlier this decade to work for the Chinese securities regulator, where he eventually headed its securitisation department.
Mr Hu, as head of the fund’s private market investment department, is in charge of overseeing the offshore investments in distressed assets, real estate, infrastructure and private equity.
Another former New York-based banker is Fan Gongsheng, head of the fund’s public market investment department and known as Ken Fan to most westerners he meets.
Like Mr Hu, Mr Fan speaks excellent English. He is often referred to internally as the “king of liquidity” as he oversaw the bulk of the fund’s $110bn offshore portfolio during 2008 when the fund was mostly in cash.
Bankers who deal closely with CIC credit his department with the decision in November 2008 and March 2009 to very quickly convert large portions of its US dollar liquid assets into liquid non-dollar assets, such as Japanese government bonds and German Bunds.
“Those were very smart trades because they caught the top of the dollar bounce each time,” says one western banker who deals closely with the fund.
Mr Fan is also a favourite target of international fund managers hoping to receive one of the large external mandates he is responsible for.
But the CIC managing director who is probably most sought after by international visitors is Zhou Yuan. A senior UBS banker in China from 1994 to 1998, Mr Zhou now heads CIC’s Strategic Investment and Concentrated Holding division.
Mr Zhou is in charge of the fund’s large positions in public companies such as Blackstone, Morgan Stanley and Noble Energy
Analysts say such high-calibre recruits are the crucial element in CIC’s successful turnround.
In fact the strategy has been so successful that Safe has started to emulate it. Last week Pacific Investment Management Co said Zhu Changhong, one of its managing directors in charge of hedge funds, was leaving the US to return to China and join Safe as head of its Reserve Management Department."