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Liverpool the odd one out for China Investment Corporation portfolio
CIS's reported interest in Liverpool is a striking anomaly as the club has nothing in common with the rest of the fund's portfolio
Jian-hua "Kenny" Huang is fronting an effort from CIC to buy Liverpool that marks a departure from the norm for the sovereign wealth fund. Photograph: Ng Han Guan/AP
Domestic and American banks; a Canadian mining firm; Coca Cola, Apple and Motorola – the companies in which China Investment Corporation has invested are a diverse bunch.
But even so, its reported interest in Liverpool is a striking anomaly. The club has nothing in common with the rest of the sovereign wealth fund's portfolio.
China established the fund in 2007 with $200bn (£126bn). Angry Chinese bloggers pummelled its managers when early investments in Blackstone and Morgan Stanley tanked during the financial crisis.
But CIC's latest report said it made a respectable 11.7% return on its international investments in 2009. It is now worth around $330bn (£208bn).
"The logic behind CIC is basically the same as that behind all sovereign wealth funds: central banks accumulate large amounts of foreign exchange reserves," Arthur Kroeber, managing director of Beijing-based consultancy Dragonomics, said.
"Traditionally they stick those into very low yielding instruments like treasuries, which don't give much return but are safe, so you won't lose money, and are liquid. You need a sort of insurance policy against a decline in trade or a domestic financial crisis. But what do you do with what you have beyond the level needed for insurance?"
In CIC's case it has diversified by putting much of its money into assets such as equities and money market funds, although they have also shown increasing interest in strategic stocks; last year it bought a 17% stake in Canada's Teck Resources for $1.5bn (£944m).
The New York Times reported recently that the fund had acquired more than $9bn (£5.7bn) worth of stock in major American corporations, including Bank of America, Citigroup, Apple, Coca-Cola, Johnson & Johnson, Motorola and Visa. It cited documents filed with the Securities and Exchange Commission.
"They have a diverse portfolio and have shown a willingness to take both small and bigger stakes," Kroeber said.
But a sports team – especially one laden with debt – would be a wholly new departure for CIC.
Risks have tended to be high and returns low or non-existent on football clubs; most foreign buyers acquire them for prestige and the opportunity to rub shoulders with stars. That would not be an enticement for CIC, which has sought to maintain a low profile and a deliberately sober, cautious style.
It is rare for the fund to comment on potential purchases and it declined to respond when contacted by the Guardian about the Liverpool bid today, although the FT quoted a spokesperson who said CIC had never heard of a plan to buy Liverpool or of Jian-hua "Kenny" Huang.
Its reticence has led in the past to rumours of deals which never actually materialised. And it is not clear why it would move away from its usual practices by arranging a deal via a private entrepreneur.
"This just isn't a big enough deal to make it worth the distraction, time and publicity," one sceptical financial expert who follows the fund closely said.
CIS's reported interest in Liverpool is a striking anomaly as the club has nothing in common with the rest of the fund's portfolio
Jian-hua "Kenny" Huang is fronting an effort from CIC to buy Liverpool that marks a departure from the norm for the sovereign wealth fund. Photograph: Ng Han Guan/AP
Domestic and American banks; a Canadian mining firm; Coca Cola, Apple and Motorola – the companies in which China Investment Corporation has invested are a diverse bunch.
But even so, its reported interest in Liverpool is a striking anomaly. The club has nothing in common with the rest of the sovereign wealth fund's portfolio.
China established the fund in 2007 with $200bn (£126bn). Angry Chinese bloggers pummelled its managers when early investments in Blackstone and Morgan Stanley tanked during the financial crisis.
But CIC's latest report said it made a respectable 11.7% return on its international investments in 2009. It is now worth around $330bn (£208bn).
"The logic behind CIC is basically the same as that behind all sovereign wealth funds: central banks accumulate large amounts of foreign exchange reserves," Arthur Kroeber, managing director of Beijing-based consultancy Dragonomics, said.
"Traditionally they stick those into very low yielding instruments like treasuries, which don't give much return but are safe, so you won't lose money, and are liquid. You need a sort of insurance policy against a decline in trade or a domestic financial crisis. But what do you do with what you have beyond the level needed for insurance?"
In CIC's case it has diversified by putting much of its money into assets such as equities and money market funds, although they have also shown increasing interest in strategic stocks; last year it bought a 17% stake in Canada's Teck Resources for $1.5bn (£944m).
The New York Times reported recently that the fund had acquired more than $9bn (£5.7bn) worth of stock in major American corporations, including Bank of America, Citigroup, Apple, Coca-Cola, Johnson & Johnson, Motorola and Visa. It cited documents filed with the Securities and Exchange Commission.
"They have a diverse portfolio and have shown a willingness to take both small and bigger stakes," Kroeber said.
But a sports team – especially one laden with debt – would be a wholly new departure for CIC.
Risks have tended to be high and returns low or non-existent on football clubs; most foreign buyers acquire them for prestige and the opportunity to rub shoulders with stars. That would not be an enticement for CIC, which has sought to maintain a low profile and a deliberately sober, cautious style.
It is rare for the fund to comment on potential purchases and it declined to respond when contacted by the Guardian about the Liverpool bid today, although the FT quoted a spokesperson who said CIC had never heard of a plan to buy Liverpool or of Jian-hua "Kenny" Huang.
Its reticence has led in the past to rumours of deals which never actually materialised. And it is not clear why it would move away from its usual practices by arranging a deal via a private entrepreneur.
"This just isn't a big enough deal to make it worth the distraction, time and publicity," one sceptical financial expert who follows the fund closely said.
