RPT-UPDATE 2-China's CIC to launch $4 bln fund with JC Flowers
(Adds more investment types, quotes)
By George Chen
NEW YORK, April 3 (Reuters) - China Investment Corp (CIC), the country's $200 billion sovereign wealth fund, has signed a deal with J.C. Flowers & Co to launch a $4 billion private equity fund to focus on investments in U.S. financial assets, despite increasing worries over the snowballing credit crisis, a source briefed on the situation said on Thursday.
Beijing-based CIC will become a limited partner of the new private equity fund, in which CIC will provide about 80 percent of the contributions, the source said.
New York-based private equity firm J.C. Flowers, run by former Goldman Sachs banker Christopher Flowers, will offer about 10 percent of the money, said the source who declined to be identified as he was not authorized to speak to the media.
There will also be several other general partners who will cover about 10 percent of capital, the source said, adding that general partners have already been selected.
Representatives of CIC and J.C. Flowers could not immediately be reached for comment.
It will be the first private equity fund to be launched by CIC since it was established by the Chinese government in late 2007 as part of Beijing's plan to diversify the investments of its huge foreign exchange reserves and to seek better returns from global markets.
The deal, which also makes J.C. Flowers the first overseas private equity fund manager appointed by CIC, came after several months of negotiations and J.C. Flowers eventually agreed to accept "tougher than usual" conditions for the partnership, the source said.
"People had been worried about whether CIC would still launch the fund as planned, amid the worse financial environment in the U.S.," said the source. "But I have to say, now the top priority of CIC may be nothing but how to spend its money quickly."
Usually, private equity fund managers may be asked to contribute only a symbolic 1 percent or 2 percent of the capital to a new fund. CIC required J.C. Flowers to invest more money, with the aim that it share more responsibility and risk.
"This will make CIC believe that J.C. Flowers is taking the same boat that CIC is also taking," said the source, referring to the U.S. firm's investment.
MORE TO COME
Besides investments in private equity funds, CIC is also looking for more than a dozen global asset managers for both the equity and fixed-income investments, said the source.
CIC invited both domestic and global fund managers in December to apply to run four different stock portfolios and a final list of such appointments, including several U.S. asset management houses, could be announced in the next one or two months.
Private equity funds are among CIC's so-called "Alternative Investment" products, which also include some proposed direct investments in global property markets.
The establishment of CIC has drawn the attention of western politicians, in particular U.S. lawmakers, who are calling for better disclosure from sovereign funds, which have taken multi- billion dollar stakes in several Western financial firms.
On Wednesday, Jesse Wang, CIC's executive vice president and chief risk officer, told a financial forum in Hong Kong that CIC is one of the most transparent sovereign funds in the world and the fund only targets a modest, single-digit investment return. (For details: [ID:nHKG5699])
So far, CIC's investments in Wall Street bank Morgan Stanley (MS.N) and U.S. private equity house Blackstone Group LP (BX.N) have both fallen sharply since it became involved and compared itself to a pension fund or endowment, and set modest goals for returns.
The new $4 billion private equity fund will be run by J.C. Flowers, while CIC will not be involved in regular management, although it will be briefed by J.C. Flowers on some significant investments in advance, said the source.
"That's probably what transparency means," said the source, referring to J.C. Flowers' manager role of the fund. (Editing by Andre Grenon)
- Tweet this
- Share this
- Digg this