Singapore Hedge Fund

Alternative asset management in Singapore

China's sovereign-weath fund commits $1 billion to Oaktree Capital…

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.

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Sovereign Funds back in business?

The sovereign-wealth funds are stirring. After going quiet as markets crashed and some high-profile investments in U.S. financial companies went awry, the huge pools of capital are back doing deals.

China Investment Corp. is planning a $500 million investment in Blackstone hedge funds and took part in Morgan Stanley’s recent rights issue. The Qatar Investment Authority is considering an investment in Porsche. And with the oil price back above $70, cash is flowing back into Middle East funds.

[foreign affair]

The moves come at a time when significant new investments by SWFs — with between $2 trillion and $3 trillion under management according to the IMF — have been thin on the ground. Figures from Dealogic put the value of cross-border equity investments by SWFs so far this year at $21.1 billion. But that is flattered by the $12.5 billion conversion of Citigroup preferred shares held by Singapore’s GIC and the Kuwait Investment Authority into common stock. Last year, total investments were $46.9 billion, and they reached $55 billion in 2007.

But as SWFs regain their risk appetites — no doubt helped by successful deals such as the recent profit Abu Dhabi’s International Petroleum Corp. recently made selling most of its $5.6 billion stake in Barclays Bank — they could be somewhat different investors. Some face serious criticism at home for losses made, especially on Western financial institutions during the crash. In China, for example, many wonder why CIC doesn’t spend its cash supporting the country’s own companies more.

Those who have had dealings with CIC say it is likely to focus more on investing in resource sector and alternative energy companies. Abu Dhabi’s IPIC, after selling out of Barclays, says it is pursuing “hydrocarbon-related” opportunities. Singapore’s Temasek, meanwhile, already has been reorienting its portfolio more toward investments in Asia and Singapore itself.

It seems probable funds will try to invest both closer to home, and in industries that fit more neatly with their own countries’ policy objectives. When they venture overseas, they are also likely to have learned from their mistakes and to be savvier in structuring deals.

But as SWFs get more confident, foreign investments are likely to remain vital. First, capital constrained Western companies need deep-pocketed investors, so political opposition to SWF deals could be more muted than before. That is particularly true if funds are smarter in positioning their investments as strategic partnerships.

In addition, despite protestations that some SWFs want to focus on Asian opportunities, or investments closer to home, there aren’t enough big opportunities to soak up all the cash. Large, liquid Western markets are likely to regain their allure.


Jean Viry-Babel
senior partner
VBK partners

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China Ready to Place Bets on Hedge Funds

China Investment Corp. is poised to invest $500 million in a Blackstone Group hedge-fund unit as part of a broad effort to put cash to work while global markets are rallying but remain below earlier peaks.

A hefty injection from China would be welcome news for hedge funds, eager to raise fresh capital after brutal markets and an exodus of investors hurt the industry. It also would offer another sign that some big money is stepping off the sidelines as markets stabilize world-wide.

Companies and investors are watching to see if sovereign-wealth funds will once again channel significant money into new deals, after several were burned by high-profile U.S. investments during the financial crisis. Though Middle East funds have ratcheted up spending lately, some remain hobbled by woes at home.

Lou Jiwei

EyePress News/Newscom

STEPPING UP: Lou Jiwei of China Investment Corp. sees opportunity.

CIC is considering opening its checkbook to a handful of hedge funds, a move that comes as CIC Chairman Lou Jiwei is concerned his fund may miss opportunities near the bottom of the market, according to people who work closely with the Chinese fund. That is a reversal in attitude from December, when Mr. Lou said he didn’t have “the courage” to invest in the developed world’s financial institutions because “we don’t know what trouble they are in.”

A spokeswoman for CIC and a spokesman for Blackstone declined to comment.

Set up in 2007 and capitalized by Beijing, CIC is one of the world’s largest sovereign-wealth funds, controlling some $200 billion. The fund already knows Blackstone well, and has suffered some from the relationship. CIC invested $3 billion for a nearly 10% stake in Blackstone just before it went public in 2007, an investment that brought it ridicule in China when the private-equity firm’s shares fell. Since Blackstone’s IPO two years ago this coming Monday, Blackstone shares have dropped about 64%, leaving CIC with a loss of about $1.9 billion.

Still, CIC managers later struck a deal with Blackstone allowing the fund to increase its stake to 12.5%, signaling confidence in the firm’s prospects. And committing capital to Blackstone’s hedge-fund unit is a bet more on its expertise than its stock.

[China Investment Corp.]

That Blackstone division has about $26 billion in investments doled out to hedge funds on behalf of Blackstone clients. One of the world’s largest so-called fund-of-fund managers, Blackstone commands access to some of the biggest funds.

It isn’t clear how much CIC might allocate to hedge funds. In the past, CIC officials have said they plan to farm out up to $80 billion to asset managers, with private-equity firms and hedge funds likely to get a chunk of that capital.

Prominent hedge funds have been talking to CIC for months. Eric Mindich of Eton Park Capital Management and John Paulson of Paulson & Co. are among hedge-fund bosses who have met with CIC representatives, among other Asian investors, in recent months, according to people familiar with the matter. Wall Street insiders see those hedge funds as on a relatively short list of managers more likely than peers to get CIC money, though such decisions could take months.

Investment staffers at the Chinese fund also have sought the hedge-fund managers’ view of the credit crisis and global markets in general.

Last year, James Simons, head of big hedge-fund firm Renaissance Technologies, talked with CIC about selling a stake in Renaissance but didn’t do a deal, people familiar with the matter said.

Spokesmen for the hedge funds declined to comment.

The China fund’s plans don’t necessarily mark a trend toward more global investments by sovereign-wealth funds. Temasek Holdings Pte. Ltd., Singapore’s state-owned investment firm, this year has moved to focus more on Asia investments, selling off stakes in foreign banks at big losses.

In the Middle East, there has been continued deal activity. In March, Abu Dhabi investors snapped up a 9.1% stake in Daimler AG. And earlier this month, the government-backed investment company of Qatar said it is considering a deal to invest in Porsche Automobil Holding SE. The buying comes as the region’s fortunes have started to turn around, thanks in large measure to climbing oil prices.

But some big Mideast players remain reined in. Kuwait, hobbled by political infighting and a banking crisis, withdrew from a planned joint venture with Dow Chemical Co. late last year, blaming the global financial crisis. And Dubai, another U.A.E. emirate, is still reeling from its property-market bust and lately has refrained from big international deal-making.

CIC has been ramping up activity. CIC in late 2007 put $5.6 billion in Morgan Stanley convertible securities whose value later plunged. But earlier this month, CIC plowed an additional $1.2 billion into Morgan Stanley. On Tuesday, CIC struck its first known property deal, agreeing to commit 200 million Australian dollars (US$158.9 million) to a financing facility for Goodman Group, Australia’s largest industrial-property trust.

Elsewhere, CIC put $3.2 billion toward a $4 billion fund managed by J.C. Flowers & Co. to hunt for opportunities among financial institutions.


Jean Viry-Babel
senior partner
VBK partners

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