UPDATE 1-China wealth fund CIC returns to profit growth in 2012

Fri Jul 26, 2013 6:43am EDT

BEIJING, July 26 (Reuters) - China's $500 billion sovereign wealth fund, China Investment Corp (CIC), returned to profit growth in 2012, citing growing traction in the global recovery at the end of the year and a steady improvement in risk asset prices.

CIC was created in 2007 to earn higher returns from riskier investments such as commodities, private equity and hedge funds for part of China's $3.4 trillion foreign exchange reserves. In 2011, the fund reported its first-ever decline in profit due to market weakness amid Europe's debt crisis.

In the third quarter of last year, the Federal Reserve's QE and the European Central Bank's Outright Monetary Transactions programmes helped boost the global recovery and lift asset prices, CIC Chairman Ding Xuedong said in the fund's annual report released on Friday.

"We promptly seized the window of opportunity on the back of a market turnaround in the second half of the year," said Ding, who became chairman earlier this month.

In the report, CIC said net profit rose 60 percent to $77.4 billion last year.

Its return on overseas investments was 10.6 percent in 2012, compared to a negative 4.3 percent in 2011, it said in the report released on its website, www.china-inv.cn.

Its cumulative annualised return in 2012 was 5.02 percent, compared with 3.8 percent the previous year.

"CIC continued to build up its long-term asset portfolio and weighted it toward infrastructure, agriculture and other projects that generated steady returns, thus providing stable cash returns while improving the risk return profile," the report said.

The fund made several high-profile long-term investments in 2012, including paying 450 million pounds ($689 million) for 10 percent of the UK's Heathrow Airport Holdings and $300 million for 9.9 percent of U.S. firm EP-Energy.

The report showed that as of December last year, 49.2 percent of its equity investment was in U.S. stocks, 27.8 percent in advanced economies outside the U.S. and the rest in emerging markets shares.

Equities as a whole made up 32 percent of its investment portfolio, with long-term investments 32.4 percent and fixed income investments 19.1 percent. Over half of the fixed income investment was in sovereign bonds of advanced economies.

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