CIC's 2012 Annual Report: What's New?

The most prominent SWF news over the past few days is China Investment Corporation’s release of its 2012 annual report, showing a strong 10.6% return.  China’s Global Times offers some highlights from the report:

The company’s overseas investment portfolio realized an annualized rate of return of 10.6 percent in 2012, compared with a return of negative 4.3 percent in 2011. And its accumulative annualized rate of return has reached 5.02 percent since its establishment in 2007, according to the annual report posted on the company’s website on Friday.

“CIC’s increased profit is mainly attributed to a global recovery, especially in the US stock market, since the second half of 2012,” Li Daxiao, director of research at Yingda Securities, told the Global Times on Sunday.

As a former securities lawyer and now a professor teaching about corporate law and disclosure, I was most interested in whether CIC’s disclosure about their governance and investment policies had changed from 2011.  

Well, in terms of the overall amount and structure of disclosure, things haven’t changed that much.  As in 2011, CIC’s report includes discussions of CIC’s governance structure.  As in 2011, the report describes CIC’s investment policies and provides examples of significant investments it has made (large stakes, passive investments).  As in 2011, the report provides a description of the investment management process.

I would call most of their disclosure changes “tweaks”.  For example, here’s a blackline (yes, I am a disclosure geek) showing the changes between the 2011 and 2012 investment policies section:

Investment Strategy and Portfolio Objectives

Investment Principles and Philosophies

CIC is committed to being a prudent, professional and responsible institutional investor operating globally with a good track recordreputation. Four basic principles underlie our investment philosophy and strategyactivities:

•             We invest on a commercial basis. The underlying investment Our objective is to seek high, long-term and sustainable financialmaximum returns for our shareholder within acceptable risk tolerance for risk.

•             We are a financial investor and do not seek to control any sector or companyof the companies in our portfolio.

•             We are a responsible investor, abiding by localthe laws and regulations in the of China and recipient countries we invest in and conscientiously assumingfulfilling our corporate social responsibilityresponsibilities.

•             OurWe pursue investments arebased on in-depth research-driven within our asset allocation framework to ensure sound,a prudent and disciplined decision-making process.

CIC follows a set of investment philosophies, which is firmly based on its institutional characteristics and understanding of investment decisions, and allocation-driven to guarantee a management:

•             Guided by the concept of CIC Portfolio, we take a holistic and disciplined approach.

Our investment philosophy can be defined as follows:

•             We take a holistic view in  to strategy design, portfolio analysisconstruction and management

 to ensure theportfolio integrity and consistency of our investment portfoliostability.

•             As a long-term investor, we are well positioned to withstand short-term volatility in markets, to pursue contrarian investmentsmarket volatilities and to build long-term positions that can capture theilliquidity premium for less liquidity.

•             We enhance the transparency and liquidity of public market assets to preserve the liquidity and flexibility of our investment see risk diversification as an effective way to control volatility and drawdown risk, which is central to CIC’s portfolio.

 

As always, there is plenty of interesting disclosure about how and where CIC is investing.  Here, for instance, are asset allocations for 2011 and 2012:

 

allocation

 

Money out of cash and into equities, primarily.  And where did CIC buy those equities?

equities

Increasingly, from the U.S.  Note also a shift from energy and materials into more financial sector investments.

As always, the CIC report provides fascinating reading for SWF watchers.