Saturday, October 11, 2008
JC Flower - the first Private Equity fund launched by CIC
China Investment Corp (CIC), the country's 200 billion U.S. dollars sovereign wealth fund, has signed a deal with JC Flowers & Co to launch a 4 billion dollars private equity fund to focus on investments in US financial assets, despite increasing worries over the snowballing credit crisis, a source said. Beijing-based CIC will become a limited partner of the new private equity fund, in which CIC will provide about 80 percent of the contributions, the source said. New York-based private equity firm JC Flowers, run by former Goldman Sachs banker Christopher Flowers, will offer about 10 percent of the money, said the source, who declined to be identified as he was not authorized to speak to the media. There will also be several other general partners who will cover about 10 percent of capital, the source said, adding that general partners have already been selected. Representatives of CIC and JC Flowers could not immediately be reached for comment. It will be the first private equity fund to be launched by CIC since it was established by the government in late 2007 as part of Beijing's plan to diversify the investments of its huge foreign exchange reserves and to seek better returns from global markets. The deal, which also makes JC Flowers the first overseas private equity fund manager appointed by CIC, came after several months of negotiations and JC Flowers eventually agreed to accept "tougher than usual" conditions for the partnership, the source said. "People had been worried about whether CIC would still launch the fund as planned, amid the worse financial environment in the US," said the source. "But I have to say, now the top priority of CIC may be nothing but how to spend its money quickly." Usually, private equity fund managers may be asked to contribute only a symbolic 1 or 2 percent of the capital to a new fund. CIC required JC Flowers to invest more money, with the aim that it share more responsibility and risk. "This will make CIC believe that JC Flowers is taking the same boat that CIC is also taking," the source said, referring to the US firm's investment. Besides investments in private equity funds, CIC is also looking for more than a dozen global asset managers for both the equity and fixed-income investments, the source said. CIC invited both domestic and global fund managers in December to apply to run four different stock portfolios and a final list of such appointments, including several US asset management houses, could be announced in the next one or two months. Private equity funds are among CIC's so-called alternative investment products, which also include some proposed direct investments in global property markets. On Wednesday, Jesse Wang, CIC's executive vice-president and chief risk officer, told a financial forum in Hong Kong that CIC is one of the most transparent sovereign funds in the world and the fund only targets a modest, single-digit investment return.