CIC plans $2bn US mortgage securities splurge

The Chinese Sovereign Wealth fund has reportedly shortlisted nine fund managers taking part in the US Public-Private Investment Plan.

Chinese sovereign wealth fund China Investment Corporation is planning to invest up to $2 billion in the US mortgage sector in anticipation of a market bounce, according to a report by Reuters.

The commitment would be its latest in a series of investments in the real estate sector this year. Other investments include A$500 million ($420 million; €292 million) in shares of embattled Australian logistics developer and fund manager Goodman Group earlier this month, and the purchase of a 40 percent stake in Chinese real estate fund manager CITIC Capital, believed to be $258 million, before the summer.

Citing two parties with direct knowledge of the matter, the report said the $200 billion fund was keen to invest in US funds that acquire toxic mortgage-backed securities and that benefit from being taxpayer-subsidised.

CIC regarded this way of investing a “safer bet” than buying into the US Federal Reserve’s Term Asset Backed Securities Loan Facility, dubbed TALF.

The report said CIC was in talks with nine US Treasury chosen Public-Private Investment Plan (PPIP) managers including AllianceBernstein Holding with sub-advisors Greenfield Partners and Rialto Capital Management, Angelo & Co with GE Capital Real Estate, BlackRock, Invesco, Marathon Asset Management, Oaktree capital Management, Trust Company of the West, Legg Mason, RLJ western Asset Management and a joint venture between Western Asset Management and Wellington Management.

CIC is expected to decide on its partners this month, the sources said, but it is unlikely that all nine parties will be selected.

PPIP was launched earlier this year in order to “soak up “ up to $40 billion in toxic securities which currently lie on the balance sheets of US banks and have been hard to offload.

Reuters also highlighted that unlike the TALF, the PIPP program is focused on securities with triple A ratings from a minimum of two credit rating agencies and which have their debts gaurenteed by the US Federal Deposit Insurance Corporation.