china investment corporation sets sights on go

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Here comes Something from "The Australian" to keep you busy LOL

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Adele Ferguson | July 10, 2009
Article from: The Australian

SPECULATION intensified yesterday that sovereign wealth fund China Investment Corporation would take a stake in property group Goodman Group before the end of the month.

The rumours lifted the share price 3.5 per cent in early trading before the stock closed 0.5c lower at 42c.

CIC lent Goodman $200 million last month in a debt and options financing facility.

But CIC would not be the first sovereign fund to take a strategic stake in an Australian asset.

According to a McKinsey Global Institute report, there is a redistribution of wealth and power taking place from western economies to other economies.

It says that despite the global financial crisis, sovereign wealth funds and petrodollar investors are gaining in strength and, together with private-equity and hedge funds, are worth a massive $US12.1 trillion ($15.5 trillion), compared with $US25 trillion for pension funds.

The report says in the year to last December, Asian sovereign wealth funds grew 9 per cent to $US4.8 trillion in sharp contrast to the 16 per cent fall in traditional pension funds to $US25 trillion.

McKinsey found that despite the global financial crisis, the value of private equity funds remained unchanged at $US900 billion in the year to December, hedge funds lost 26 per cent of value, or $US500bn, to $1.4 trillion, and petrodollar countries dropped $US100bn to $5 trillion.

"When you look at the facts and figures, and the underlying forces at play, the conclusion is that reports of their collective demise has been greatly exaggerated," McKinsey director Charles Roxburgh said.

Mr Roxburgh said the global financial crisis had altered the paths of four influential groups of investors set for growth and still powerful.

According to the report, China accounted for virtually all growth in the Asian sovereign wealth funds, the assets of its central bank and sovereign wealth fund climbing 28 per cent to more than $US2 trillion.

Foreign assets grew slightly in Japan and Taiwan but the foreign wealth of most other Asian governments declined.

"China's central bank now has an estimated $US1.4 trillion of dollar assets, making it vulnerable to the future of the US economy and the value of the dollar," the report says.

"Chinese policy makers are now seeking to promote more domestic consumption to lessen dependence on exports. But even if its current account surplus declines over the next five years, its central bank reserve assets would still double by 2013."

In Mckinsey's base case scenario, Asian sovereign foreign assets will collectively grow to $US7.5 trillion by 2013, China's government-owned foreign assets doubling, despite a declining current account surplus.

As their power and size increases, their need to diversify into different asset classes and rebalance away from US denominated assets rises.

A diversification from the US will make Australia a key target because of its strong resources base, stable economy and being in the Asia-Pacific region.

In the case of petrodollar investors, McKinsey estimates total foreign assets will jump from $US5 trillion at December 30, to $US9 trillion by 2013.

"Financial power will continue to disperse and shift from the West to other parts of the world, with the assets of oil exporters and Asian sovereign investors projected to grow twice as fast as those of other institutional investors through 2013."

Hedge funds took the biggest hit during the global financial crisis and will continue to struggle before recovering to $US1.5 trillion by 2013.

The overall value of private equity did not gone down in the year to December, but the figures mask deeper problems.

According to the report, the global value of buyout deals fell from $US580bn in 2007 to $US150bn in 2008, of which just $US18bn occurred in the final quarter of the year.

"With banks still facing huge credit losses, funding for these largest deals is unlikely to revive anytime soon," it says.

"The industry should hope that history is not a guide. After the buyout peak in 1988, it took 20 years for megadeals to return."