The job it seemed no one wanted–running China’s second largest and most prominent sovereign wealth fund–was recently accepted by Ding Xuedong, a former deputy finance minister. So what challenges does he face in running the fund? A Businessweek article lists three: boosting returns, finding new capital and dealing with rivalry from the manager of the nation’s foreign-exchange reserves (on this point the article’s author was wise enough to quote my SWFI colleague–and SWFI co-head–Patrick Schena).
I am particularly interested in the first point, since it makes it clear why no one wanted the CIC job in the first place: the obsession with returns. More than this, it is the obsession with annual returns that is so problematic. And note that this concern with annual returns–a very real and legitimate concern given the political and public environment in which the CIC chief operates–seems out of step with what the CIC board has determined to be the appropriate way of thinking about returns. Here is a quote from the 2011 CIC annual report:
We base our investment approach and benchmark portfolio structure on the mandate and investment policies set by the Board of Directors. In early 2011, the Board decided that the investment performance should be based on an extended 10-year horizon to reflect our long-term mandate and that a rolling 10-year annualized return would, over time, also be a major measure of performance. We accordingly adjusted our asset allocation structures—including the Strategic Asset Allocation and Tactical Asset Allocation—as well as our risk management processes.
Is there a tougher job in finance than navigating the CIC through the treacherous shoals of Chinese government oversight, Chinese public opinion, and host-country regulator (especially U.S. regulator) suspicion? You only need to 1) earn at least 10% a year by 2) investing in (at least some) countries that don’t really want your investment, while 3) maintaining a “long-term mandate”.
So, how much is this guy getting paid?