CIC forms RE dept, doubles allocation – Exclusive

China’s sovereign wealth fund is understood to have pumped resources into the new division in an effort to grow a real estate portfolio that could end up being worth as much as $74 billion.

China Investment Corporation (CIC), the sovereign wealth fund of China, has underlined its appetite for a greater push into private real estate investment with the creation of a dedicated department and the doubling of its allocation to the asset class.

From the Beijing-based state fund’s inception in 2007, CIC’s real estate investing activities have formed part of a wider private equity division. However, PERE understands that as of this year, CIC has been operating a standalone real estate group, called the Department of Real Estate.

The department is led by real estate head Zhi Wei Cai, a long-serving executive focused on real estate investments at the state fund.

In another indicator of its commitment to property, the fund, which managed approximately $740 billion of assets as of the end of 2014, according to its latest annual report published last summer, is understood to have doubled its allocation to real estate to 10 percent.

In its report, CIC classifies real estate as a long term investment, alongside private equity, resources/commodities and infrastructure. At the time of publication, these made up 26.2 percent of the state fund’s total assets, or about $193 billion.

On the basis of the total assets value shown in the annual report, the doubling of CIC’s real estate allocation would mean the fund could ultimately own as much as $74 billion of real estate assets. It is not thought that CIC manages anywhere near that much real estate at present. It would in fact take some time for it to achieve such a target.

Nevertheless, the state fund has been making inroads with some of the market’s largest transactions of late. In one example last year, it made headlines with the acquisition of Investa Property Trust, a vehicle containing nine prime offices in Australia, for A$2.45 billion (€1.6 billion; $1.8 billion), from Morgan Stanley Real Estate Investing (MSREI), Morgan Stanley’s real estate business. In another example in Europe, CIC teamed up with Paris-based real estate investment management firm AEW Europe for the purchase of 10 shopping centers in Belgium and France in a deal worth €1.3 billion.

The state fund has also been a meaningful backer of a small number of third-party managers, with commitments to opportunistic funds managed by MSREI, The Blackstone Group and Brookfield Asset Management.

CIC’s appetite for real estate further demonstrates just how critical the world’s largest institutional investors currently regard the relative security of property investments for maintaining or enhancing total portfolio income over the medium to long term.

The fund is not alone in extending its real estate allocations in recent years. Other state vehicles to have done similar include Norway’s Norges Bank Investment Management and Korea’s National Pension Service.