CIC to make $260m China debut with CITIC Capital

The $200bn Chinese sovereign wealth fund is poised to buy a 40% stake in Chinese private equity and real estate firm, CITIC Capital, in its first domestic investment in a fund management platform. The Beijing-based fund purchased a stake in The Blackstone Group last year.

China Investment Corporation (CIC), the $200 billion sovereign wealth fund which invests China’s foreign exchange reserves, has agreed to purchase a 40 percent stake in Hong Kong-based private equity and real estate fund manager CITC Capital.

The firm confirmed the transaction to PERE but would not divulge any details about the deal. However a report by Reuters suggests the stake would cost $258 million and that CITIC Capital would issue new shares to Beijing-headquartered CIC in a deal aimed at boosting its capital base to HK$5 billion ($645 million) from HK$3 billion.

This is not the first time CIC will be buying into an alternative investments manager; it paid around $3 billion for a 9.9 percent stake in The Blackstone Group prior to the firm’s public float in 2007. In October 2008, Blackstone raised the equity limit CIC could own in the publicly listed firm to 12.5 percent, allowing the Chinese sovereign wealth fund to increase its stake.

An investment in CITIC Capital by CIC would mean that CITIC Pacific and CITIC International Finance would see their holding in CITIC Capital drop from 50 percent each to 30 percent each with CIC controlling the rest, Reuters reported.

The investment would provide CIC exposure to China’s real estate market through the management platform. The deal does not, however, constitute a commitment to invest in CITIC’s funds.

CITIC Capital, which managed approximately $1.6 billion of real estate in January this year, was one of the few fund managers to successfully hold an equity closing for one of its vehicles this year, having closed on $400 million for its third China-focused opportunity fund in the same month.

The Capital China Real Estate Investment Fund III aims to capitalize on distressed situations across the country’s tier I and tier II cities. It has already begun investing the equity which was raised from a mixture of institutional investors across Europe, the US, Middle- East and Japan.