China’s CIC set to invest in U.S. mortgages
China’s $200 billion sovereign wealth fund, which lost big on its ill-timed 2007 Morgan Stanley and Blackstone bets, plans to invest up to $2 billion in U.S. mortgages as it eyes a property market rebound, two people with direct knowledge of the matter said Monday.
China Investment Corp plans to soon invest in U.S. taxpayer-subsidized investment funds that will acquire “toxic” mortgage-backed securities from the nation’s banks. CIC believes these assets are a safer bet than buying into the U.S. Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF), the people with direct knowledge said.
CIC is in talks with nine U.S. Treasury-designated Public-Private Investment Plan managers, the sources said.
They include: AllianceBernstein Holding, with sub-advisers Greenfield Partners LLC and Rialto Capital Management LLC; Angelo, Gordon & Co LP with GE Capital Real Estate, a unit of General Electric Co; BlackRock Inc; Invesco Ltd; Marathon Asset Management LP; Oaktree Capital Management LP; Trust Company of the West, a unit of Legg Mason; RLJ Western Asset Management LP, a venture formed by Legg’s Western Asset Management unit; and Wellington Management Co LLP.
CIC is expected to decide this month which of the nine PPIP managers will handle its investments in mortgage-backed securities under the PPIP plan, the sources said.
The fund is likely to select several, not all, of the firms, said the sources, who have direct knowledge of the matter, but asked not to be identified as the talks are confidential. CIC cannot invest directly in the PPIP.
CIC, BlackRock, Legg Mason and AllianceBernstein declined to comment. Officials from the other investment managers were not immediately available payday advance.
U.S. TREASURY APPROVES
Under the Public-Private Investment Plan launched earlier this year, the U.S. government plans to seed a number of investment funds with taxpayer money.
When combined with money from other investors, these private sector-managed funds are expected to soak up as much as $40 billion in soured, hard-to-sell securities clogging the balance sheets of banks.
CIC’s move comes after the United States and China ended their first annual Strategic and Economic Dialogue late last month. The two countries agreed to lead the global economy out of recession, with China seeking safer investments in the world’s leading economy.
“The Chinese government is always trying to seek a more ideal way to invest in U.S. assets rather than purely buying U.S. government bonds all the time,” said the source.
“Some might think $2 billion for a $200 billion sovereign fund is not big money, but it can be regarded as an innovative and positive option for Chinese investment,” the source added.
The U.S. Treasury has been informed the nine designated PPIP managers are in talks to receive CIC money, and supports bringing foreign investors such as CIC into the PPIP program, the sources said.
Early this year, some U.S. asset managers approached CIC to invest in their funds focused on mortgage securities sold into the market under the TALF, the sources said, but the Chinese declined given the uncertain outlook at the time for U.S. economic recovery.
Filed under: finance by Specialist