As a large, long-term institutional investor, CIC has always attached great importance to constructing a simple, transparent, and resilient portfolio and undertaken continuous efforts to optimize asset allocation and portfolio management. CIC focuses on asset allocation based on four principles: (a) compliance with the long-term return objectives and risk tolerance approved by the Board of Directors; (b) alignment with CIC's characteristics and investment principles and philosophies; (c) based on academic research and the practices of other investment institutions; and (d) continuous optimization and improvement through investment practice.

CIC adopts the Reference Portfolio framework, which consists of public market equities and fixed-income products obtained through passive low-cost products. The framework also included the Three-year Policy Portfolio, the Annual Policy Portfolio/Target Portfolio, and the Actual Portfolio. The Reference Portfolio serves as the anchor for the risk target of the overall portfolio and the benchmark for medium- to long-term relative performance. The Three-year Policy Portfolio makes allocations to other asset classes and active strategies and is expected to outperform the Reference Portfolio with a higher risk-return profile. The Annual Policy Portfolio/Target Portfolio takes into account the progress of alternative investment and short-term market views. The framework has improved the transparency and effectiveness of asset allocation and overall portfolio management. At present, many sovereign wealth funds, pension funds, and peer institutions in other countries are using the Reference Portfolio framework.

CIC invests in a wide range of financial products globally, including public equity, fixed income, alternative assets and cash and others. Public equity refers to equity investment in listed companies. Fixed income refers to bonds, including sovereign, corporate, and agency bonds. Alternative assets include hedge funds, risk parity investments, industry-wide direct investments, industry-wide private equity, private credit, resources/commodities, real estate and infrastructure. Cash and others includes cash, overnight deposits, and US Treasury bills.

In 2011, the Board of Directors extended our investment horizon to 10 years and adopted rolling annualized return as as a key indicator for evaluating our performance.

  • Global Investment Portfolio Distribution

    As of 31 December 2018

    Internally Managed Assets versus Externally Managed Assets

    As of 31 December 2018

Against the backdrop of complex and fluid situations at home and abroad, CIC managed its investments actively and prudently, and was able to achieve satisfactory results. As of December 31 2018, the weight of alternative investments (including direct investments) in the company’s overseas investment portfolio reached 44.1%, up 4.8 percentage points from the previous year. The total costs (excluding financial expenses) of total overseas investment portfolio was also kept within the budget limits.

Asset Allocation. In 2018, the company effectively responded to market changes and progressively reduced portfolio risk and leverage. The actual portfolio return exceeded Policy Portfolio return, which in turn exceeded Reference Portfolio return. The company took steps to improve its institutional investment capacity and judgments of the market, fostered stronger strategic partnerships, and conducted analysis of key topics of the month and market events. CIC optimized the design and management of total portfolio, conducted multidimensional research on asset allocation, built tail hedging portfolios, and optimized the procedures for tactical asset allocation. The company also created cash management accounts for investment activities to ensure the liquidity matching and developed various tools for managing investment liquidity to improve efficiency and boost return. It also further optimized allocation efficiency for long-term assets.

  • CIC International Public Market Investment

    In 2018, CIC International intensified detail-oriented management for internally and externally managed portfolios. It optimized portfolio structure, worked on expanding sustainable, replicable, and scalable sources of excess returns, and continued to improve its investment management capabilities.

    Public market equities. CIC International monitored and evaluated existing investments in depth to adjust external managers and optimize portfolio structure. The company also initiated factor investing, strengthened the relevant research, and improved the tools for quantitative analysis.

    Fixed income and absolute return. For fixed income investment, alongside existing managers, a reserve pool of managers was set up for long-term tracking. For hedge fund portfolio, we continued to optimize strategy allocation and fund selections through portfolio healthy turnover. For multi-asset strategy, we enhanced its risk-parity investments, and branched into credit products for better diversification of risks.

    In-house capabilities. For internally managed equities, we continued to optimize selected fundamental-driven portfolios and develop internally managed quantitative portfolios. For internally managed bonds, portfolios were expanded to the active management of global government bonds and government-related bonds, inflation-linked bonds, and passive portfolios of treasuries issued by developed economies. We engaged in securities lending business, financing, and centralized collateral management. We continued to foster greater complementarity and mutual strengthening of capabilities in the internal and external management of investments.

  • Fixed Income in Global Portfolio

    As of 31 December 2018

    Public Equity in Global Portfolio by Region

    As of 31 December 2018

    Public Equity in Global Portfolio by Sector

    As of 31 December 2018

    CIC International Long-term Investment

    In 2018, CIC focused on strengthening research and allocation strategy of long-term assets, while unifying the investment decision-making and project supervision processes, the company elevated the quality of long-term asset management. In 2018, the company approved a total of 57 private equity, private credit, and real estate projects, and either fully or partly exited from several projects, delivering positive results.

    Private equity and private credit. The company reviewed its invested funds, selected and invested in superior funds and renewed its commitment to high-performing fund managers. It tracked market trends and tapped into long-term private equity investment strategies. It also improved the decision-making process for co-investment and co-sponsorship, increased as appropriate the ticket size of selected high-quality projects and promptly captured small-scale high-quality investment opportunities. Based on economic and credit cycles, industry fundamentals and the market dynamics of non-investment grade credit products, the company took active steps in implementing its private credit investment plan.

    Real estate. The company continued to perform well in traditional subsectors, investing in high-quality assets with long-term stable returns and strong price resilience in major markets. It adopted a prudent approach to direct investment, focusing on platform projects and new alternative real estate investment opportunities. It also selected and invested in superior funds and renewed its commitment to high-performing fund managers, implementing various co-investment projects.

    Post-investment management. The company took steps in closely tracking and regularly reviewing projects it invested in, and developed project-based post-investment management plans. It also conducted in-depth analysis of industry cycles and regional market trends to spot opportunities to refinance, reduce, or exit investments.

  • Investment Management Activities of CIC Capital

    In 2018, CIC Capital continued to develop its specialized direct investment platforms, formulated eight new sets of rules and regulations relating to investment management, optimized the classified management of investments, and further developed a system consistent with the specifics of direct investment. It also strengthened monitoring of the investment portfolio, established a comprehensive monitoring mechanism to oversee audit reporting of investee companies, and optimized the supervision mechanism for investment decisions and executions.

    In 2018, The company finalized its decisions to invest in 24 overseas projects involving a total commitment of about USD 4.9 billion, and completed several notable transactions in sectors such as infrastructure, energy, internet, consumer, healthcare, manufacturing and agriculture. Based on the market situations and project performance, the company drew up post-investment management plans for the existing portfolio, to improve engagement with investee companies and other shareholders for value creation and to seek opportunities to exit and reap returns at the right time.

    Infrastructure. The company strengthened cooperation with key fund managers, focused on working with industrial investors to expand co-investments and co-sponsorships, with a number of investments made in communications and energy infrastructure. Investment strategies and post-investment management models were also customized according to project features, market opportunities, and changes in regulatory policies of different regions, countries, and industries.

    Resources and energy. By leveraging opportunities in industry cycles, CIC Capital actively managed existing investments and captured favorable exit windows. It also adopted a long-term perspective and progressively increased its exposure to new energy to optimize current portfolio for better risk diversification.

    Industry-wide investments. Multiple transactions were closed in general sectors with the China perspective. In TMT (i.e. technology, media and telecom) sectors, CIC Capital pursued opportunities where traditional industries are enabled or transformed with new technologies. In healthcare, it focused on leading enterprises in subsectors such as big data analytics, independent lab testing, etc. In consumer, investments were driven by robust research on trends and opportunities in various subsectors, and augmented with value creation efforts through collaboration with Chinese partners. In advanced manufacturing, the company worked closely with a growing network of partners on companies that have inherent growth potentials that could be unleashed by tapping the Chinese market.

    Agriculture. The company studied, analyzed, and explored valuable subsectors, improved its investment strategy that encompassed the entire industry chain based on the company’s specificities and strengths, and actively built a specialized business platform for overseas direct investment in the agriculture sector. It also dedicated efforts in forging deep cooperation with industrial players and investment institutions in China and other countries to invest in seeding, supply chains, logistics, and other subsectors in the agriculture space.

    Multilateral and bilateral funds. CIC Capital continued with the management of China-US Industrial Cooperation Partnership, Russia-China Investment Fund, and China Ireland Growth Technology Fund, as well as the equity stakes CIC holds in Silk Road Fund. Extensive efforts were made to explore synergies between bilateral funds and direct investments with the China perspective, throughout deal sourcing, evaluation, execution and post-investment value creation.

  • Overseas Offices Activities

    Establishing overseas offices is CIC’s strategic initiative to expand its global reach, deepen partnerships and improve investment capacity.

  • In 2018, CIC International (Hong Kong) adhered to the existing investment and research discipline to actively and prudently managing portfolios with outstanding performance. The company also leveraged its geographical advantage to closely monitor regional and global market dynamics and conduct active exchanges and interactions with peer institutions. CIC International (Hong Kong) made breakthroughs in identifying investment targets and provided support through post-investment management, which drove powerful two-way communication and effective synergy with headquarters.
  • In 2018, the Representative Office in New York leveraged on New York City’s resources and position as an international financial center to expand CIC’s business network and identify potential investment opportunities. The office’s efforts in business network development as well as its in-depth research in the regional economy, financial markets and regulatory trends strengthened the company’s connection, communication and cooperation with local business partners, and provided support to the company’s investment activities in Americas.

As of December 31 2018, the company’s net return on overseas investment outperformed the annual assessment benchmark set by the Board of Directors. Its 10-year cumulative annualized net return also exceeded the long-term performance target set by the Board of Directors.

In 2018, CIC’s overseas portfolio posted a net annual return of -2.35%. As of December 31, 2018, CIC had realized an annualized cumulative 10-year net return of 6.07% and an annualized cumulative net return of 5.18% since its inception on September 29, 2007 (performances above are all denominated in USD).

Investment Performance on the Global Portfolio (all measured in US$)

Year Net cumulative annualized return Net annual return
2008a -2.1% -2.1%
2009 4.1% 11.7%
2014 5.66% 5.47%
2015 4.58% -2.96%
2010 6.4% 11.7%
2011 3.8% -4.3%
2012 5.02% 10.60%
2013 5.70% 9.33%
2016 4.76% 6.22%
2017 5.94% 17.59%
2018 5.18% -2.35%

a. Net cumulative annualized returns and the annual return for 2008 are calculated since inception on 29 September 2007.

Investment Philosophies Risk Management