Sovereign Wealth Fund Institute

In December 2011, the Abu Dhabi Investment Authority purchased 9.9% of Kemble Water Limited, the holding company of Thames Water. The private regulated utility company is responsible for the public water supply and waste water treatment in parts of Greater London, Thames Valley, Surrey, and other areas. The utility is regulated by the Office of Water Services.

The China Investment Corporation (CIC) through a sovereign wealth enterprise (SWE) made its first major move into UK infrastructure buy purchasing an 8.68% stake in Kemble Water.

Earlier, CIC chairman Lou Jiwei indicated the CIC’s interest in European and American infrastructure.

Investing in new energy infrastructure is a blossoming area for many sovereign investors. There are numerous risks inherent in these types of projects such as political risk, financing risk, and developmental risk. In the past, the China Investment Corporation (CIC) has invested in AES Corp. stock. AES Corp. and the CIC have partnered strategically and financially. Recently, the CIC and AES Corp have partnered in a Vietnamese infrastructure project. By partnering with the China Investment Corporation and Posco, AES Corp has lowered political risk in the project, since the deal is involving foreign governmental investors.  Vietnam has a growing economy in which energy demand has exceeded supply. Energy generation capacity is trailing behind demand.

After completion this will be the biggest private sector power plant in Vietnam and will set precedence for future foreign investment in Vietnamese infrastructure.

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Bloomberg reports, “U.S. infrastructure-spending plans are “too little, too late” and should be increased in preference to quantitative easing, said Zhou Yuan, head of asset allocation at China’s $300 billion sovereign wealth fund. Proposed spending of about $500 billion over six years on infrastructure should be doubled, Zhou said in an interview on Oct. 30.

China Investment Corp. may invest, and wouldn’t expect to own completed projects, he said. “Infrastructure of this kind will serve to provide more jobs” than further quantitative easing, Zhou said in New York, while attending a conference hosted by the Chinese Finance Association. Low interest rates in the U.S. are his “top concern,” he said.

Congress has yet to approve the proposed $500 billion of spending on highways and transit. Transportation Secretary Ray LaHood said Oct. 12 he hoped Congress would make the plan a priority next year. Beijing-based CIC was created in September 2007, funded by a $200 billion allocation backed by China’s foreign reserves. Zhou said the fund has depleted its cash to the point where it’s seeking more government money. About 8.6 percent of the portfolio was in cash as of June 9, according to Executive Vice President Jesse Wang. Cash and equivalents were 32 percent of holdings at the end of 2009, according to its annual report.

“We are expecting continued injections,” Zhou said. “The form, quantity and structure remain to be determined.””

Source: Bloomberg

According to the CIC report, “From its inception in September, 2007 through the end of 2008, CIC deployed about USD 21 billion into the market. The gradual deployment of capital was appropriate for a new company particularly under the turbulent market conditions. However, as CIC built its capability and the global economic and investment environment started to show signs of recovery, it significantly stepped up its investment activities, making new investments of about USD 58 billion in 2009.

Investment Performance

1 Return on Capital is based on the accounting income of CIC’s global portfolio, and the cash income and cash dividend declared from its domestic portfolio companies. The return rate is calculated based on CIC’s registered capital of USD 200 billion. Under the equity accounting method, accounting income is generally larger than the cash dividend received from the domestic portfolio companies. Since CIC’s domestic investments are for long-term purposes and their disposals are under restriction, CIC believes cash returns to be more appropriate performance metrics for Central Huijin’s domestic financial institution investments.

2 Global Portfolio Return is based on the annual change in the fair market value of CIC’s global investments.”