BlackRock, China's CIC to launch fund

BlackRock Inc, the world's biggest asset manager, and China Investment Corp (CIC), the nation's sovereign wealth fund, have agreed to jointly launch an investment fund, two sources with direct knowledge of the matter said. Liu Erfei, chairman of Bank of America Merrill Lynch's China operations, will leave the bank to run the fund, according to one of the sources, who did not say where the fund would be investing. CIC, set up in 2007, has a mandate to diversify part of China's $3.3 trillion (D12.1 trillion) foreign currency reserves into riskier overseas assets for higher returns. "BlackRock's strength is in its familiarity with global markets and policies, and it can help identify acquisition targets for Chinese companies," said Cindy Qu, an analyst at fund consultancy Z-Ben Advisors. "Meanwhile, the fund enables BlackRock to benefit from China's outbound investment boom." Officials from BlackRock, CIC and Bank of America Merrill Lynch in Hong Kong all declined to comment. The fund was likely to be worth several billion US dollars, the Financial Times reported earlier. One purpose of the fund would be to invest in China itself, the FT said, citing Hu Bing, a senior official at CIC. The report also quoted unidentified sources as saying the fund's main focus would be to invest in companies outside China with technologies or resources that the world's second-largest economy needs. The fund would help expand BlackRock's footprint in Asia, where the asset manager has only a small presence outside Japan. In China, BlackRock holds a minority stake in mutual fund house Bank of China Investment Management Co. CIC, which managed $410 billion at the end of 2010, has been stepping up its overseas investments in the aftermath of the global financial crisis. Having nearly fully invested its capital, CIC has obtained an additional $50 billion from China's central bank, sources told Reuters in February. The sovereign wealth fund currently oversees about 40 per cent of its global portfolio on its own, with the remainder managed by third-party asset managers. Last October, CIC and Russian state development bank VEB agreed to commit $1 billion each in a Russia-China Investment fund. CIC has also invested in private equity firms, including Britain's Apax Partners and Blackstone Group. Return on CIC's global investment portfolio was 11.7 per cent in 2010 and the cumulative annualised return was 6.4 per cent since inception. CIC's portfolio allocation in 2010 was 48 per cent equities, 27 per cent fixed income, 21 per cent alternatives and four per cent others. As of the end of March, BlackRock's assets under management totalled $3.7 trillion.