China's $200-billion sovereign wealth fund is set to invest up to $2 billion in US mortgages as it eyes a property market recovery, two people with direct knowledge of the matter said yesterday.
China Investment Corp (CIC) plans to invest soon in US taxpayer subsidized investment funds of toxic mortgage-backed securities, which it sees as a safer bet than buying into the $700-billion Troubled Asset Relief Program (TARP), also backed by the US Treasury.
Under the Public-Private Investment Plan (PPIP) launched earlier this year, the US government plans to seed a number of public-private investment funds that would combine taxpayer money with private capital to buy as much as $40 billion in toxic securities from banks.
Compared with TARP, the new and smaller PPIP program focuses on safer toxic securities, which must have so-called "Triple-A" ratings by at least two agencies, and are debts guaranteed by the US Federal Deposit Insurance Corporation (FDIC), sources explained.
"In this case, CIC feels safer to invest and the safer it feels, the more confident it will naturally feel about its investments, as well as in the prospects for the US economy," said one of the sources.
"The Chinese government is always trying to seek a more ideal way to invest in US assets rather than purely buying US 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."
CIC is in talks with nine designated PPIP managers, which include Alliance Bernstein LP, with sub-advisers Greenfield Partners LLC and Rialto Capital Management LLC; Angelo Gordon and Co LP, with GE Capital Real Estate; BlackRock Inc; Invesco Ltd; Marathon Asset Management LP; Oaktree Capital Management LP; RLJ Western Asset Management LP; Trust Company of the West; and Wellington Management Co LLP, said the sources who did not want to be identified.
CIC is expected to decide this month which of the nine designated PPIP managers it will mandate for its investments in financial products, said the sources.
The fund is likely to select several, not all, of the firms, said the sources, CIC cannot invest directly in the PPIP.
