China Auditor Blames CIC Mismanagement for Investment Losses
Mismanagement at China Investment Corp., the nation’s $575 billion sovereign wealth fund, led to overseas investment losses that could widen, according to the National Audit Office.
A dereliction of duty by managers, inadequate due diligence and post-investment management were identified in 12 investments made abroad by the fund between 2008 and 2013, according to results of an audit conducted last year. Six of the deals were unprofitable, four of them had unrealized losses, and two may potentially lose money, according to the report released today on the auditor’s website, which didn’t name the investments or disclose their size.
CIC, set up in 2007, reported a 10.6 percent return on its overseas portfolio in 2012 as global equities rallied, reversing a 4.3 percent loss in 2011, according to company statements. Returns exceeded 8 percent last year, Vice President Liang Xiang said in March. Founding Chairman and Chief Executive Officer Lou Jiwei, replaced last year by Ding Xuedong, is now China’s finance minister.
Auditors also found irregularities at Beijing-based CIC’s domestic units. Among them, Central Huijin Investment Ltd. lost 1.26 billion yuan ($202 million) in potential investment gains in 2011 by selling a stake in a local securities company at the cost price and not conducting an asset appraisal as required, according to the report.
A domestic subsidiary invested 8.3 billion yuan in property development as of March 31 last year even though the mandate was to just develop land, while another unit bought almost 300 million shares in Bank of Shanghai Co. in 2011, without a required asset evaluation, the audit office said.
Auditors also said CIC’s selection of external managers for some other overseas investments was “not very standard,” according to the report, which didn’t elaborate.
CIC’s Beijing-based press office didn’t immediately respond to an e-mail seeking comment.
Source: bloomberg
