A Los Angeles investment firm has come out a big winner in the battle among some of world’s best-known money managers vying for a slice of cash from China’s sovereign-wealth fund.
China Investment Corp., which is doling out billions of dollars as it tries to profit from a global economic recovery, has committed to invest about $1 billion with Oaktree Capital Management LP, people familiar with the matter said. The big allocation comes as the Chinese fund stands poised to make a wave of investments directly into hedge funds around the world.
For more than a year, big-name money managers have aggressively courted CIC, as China’s fund is known, looking to Beijing for cash and its influential stamp of approval as anxious investors pulled money out of their funds amid the financial crisis.
“CIC represents one of the biggest investment opportunities in the world,” says Jake Walthour, who as head of advisory services at Aksia LLC comes into contact with hundreds of hedge funds as he helps investors decide where to put their money.
Oaktree is expected to invest CIC’s money over the course of several years in distressed debt and other fixed-income assets, and it adds to other inflows to the firm this year, people familiar with the matter say. Oaktree oversees more than $60 billion, making investments in a variety of realms, from debt of battered casino operators to buying whole companies.
An Oaktree spokeswoman declined to discuss the matter. A CIC representative didn’t respond to a request for comment.
Oaktree was founded in 1995 in Los Angeles and New York by a team of debt investors including Howard Marks, who is still its chairman. In July, Oaktree was among nine big asset-management firms chosen by the U.S. Treasury as fund managers for the Public-Private Investment Partnership, or PPIP, the government program designed to rid banks of toxic assets.
In recent months, CIC has emerged as the most active government investment fund on the world stage, deploying portions its $300 billion portfolio in deals as diverse as natural resources and real estate, aiming to catch the upside of what its leaders expect to be a global rebound. J.P. Morgan Chase & Co. China analysts estimate that altogether CIC will spend as much as $50 billion on new overseas investments this year.
CIC is expected to funnel an additional $2 billion directly into hedge funds in the coming months. To score a spot on the list, some of the world’s most famous hedge-fund managers have made a pilgrimage to the 300-foot-tall glass-walled atrium of New Beijing Poly Plaza, CIC’s headquarters in the Chinese capital, to pitch their services. They include Eton Park Capital Management boss Eric Mindich and Paulson & Co.’s John Paulson, whose firm made a mint in 2007 betting on a housing-market downturn.
0Already this summer, CIC has funneled a billion dollars into hedge funds, though indirectly. It has channeled that money through two so-called funds of hedge funds—that is, managers that farm out pools of money to dozens of funds—that are run by Blackstone Group LP and Morgan Stanley. CIC owns stakes in both firms, making them familiar partners as it dips its toes into the hedge-fund world. Last year, CIC made a big private-equity investment with J.C. Flowers & Co., allocating $3.2 billion for opportunities among financial institutions.
Big Score for Capula
As CIC picks up its hedge-fund investments, lesser-known names also are getting a shot. Capula Investment Management LLP, a London-based firm started in 2005 overseeing $3.6 billion in fixed-income assets, received $200 million from the China fund in August, according to people familiar with the situation.
Capula is led by Yan Huo, the son and grandson of Chinese physicists who earned a doctorate in electrical engineering from Princeton University and went on to trade proprietary capital at J.P. Morgan Chase & Co. CIC scrutinized Capula’s operations and performance for more than a year before finalizing its decision, a person familiar with the matter says. The allocation came after Capula gained 9.5% in 2008, a year when most hedge funds lost money.
Fund managers are known to travel the globe hunting for new money, but rarely have so many influential managers gone to such lengths to secure funds from one source.
Gaining Sway
Other sources of capital grew scarce in the wake of last year’s market turmoil. Risk appetites have been low at other sovereign funds in the Middle East and Singapore that took a big hit on investments last year. Their pullback has helped increase China’s clout in the hedge-fund industry.
Other hedge-fund names mentioned in recent weeks as potential front-runners for CIC money, according to people familiar with the matter, include Winton Capital Management and Lansdowne Capital Ltd., both of London; Och-Ziff Capital Management Group LLC in New York; and Los Angeles-based Canyon Partners. Representatives for the firms declined to comment.
Daniel Och, the former Goldman Sachs trader who started Och-Ziff in 1994 and took it public in November 2007, met with CIC in Beijing just this month, people familiar with the matter say.
Other managers who have met with CIC include Renaissance Technologies LLC and Citadel Investment Group LLC, people familiar with the matter say. CIC insiders have suggested to advisers that performance concerns at those firms in the past year could hurt their chances of receiving allocations, at least in the short term, people close to the matter say. Representatives for the firms declined to comment.
CIC’s Gatekeeper
At the center of CIC’s hedge-fund vetting stands Felix Chee, a Singapore native who formerly oversaw the University of Toronto’s endowment fund. While CIC at times has had problems attracting experienced investment professionals, in part due to pay constraints, Mr. Chee has a deep understanding of asset allocation and corporate finance, people who have met with him say.
CIC has pushed hard for breaks in fees that could total hundreds of millions of dollars in coming years, according to people familiar with the matter. CIC has considered allocating money to SAC Capital Advisors LP chief Steve Cohen, who has hosted CIC decision-makers at his mansion in Greenwich, Conn. SAC has a strong track record, but CIC has expressed hesitation to pay Mr. Cohen’s fees, which are some of the industry’s highest, these people say. A spokesman for SAC declined to comment.
Droves of investment titans flying in from around the world occasionally have posed logistical snags, with CIC and others sometimes asked to intervene on behalf of fund bosses requesting Beijing landing slots, people familiar with the matter say. The slots are limited and controlled by the Chinese air force. For example, last year as Beijing was hosting the Olympics, Blackstone needed help in getting a landing slot for its chief, Stephen Schwarzman, arriving in his private jet.
Filed under: Uncategorized, China Investment Corp, CIC, Howard Marks, Oaktree Capital
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