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Trickle of Chinese money could become investment flood

Section: Daily Dispatches

By Florian Gimbel
Financial Times, London
Monday, May 21, 2007

HONG KONG -- The decision by China to acquire a $3 billion stake in Blackstone, the US private equity firm, is the first trickle in what is expected to be a flood of overseas investments in the next few years.

The new investment body, which is set to manage up to $300 billion worth of Chinese foreign reserves, is planning to follow the country's cash-rich banks, insurers, and pension funds, which have recently started to invest abroad for the first time.

It is a shift that has been hailed as a potential "wall of money" to hit equity markets such as Hong Kong, the first port of call for many Chinese investors. Beijing hopes to use controlled outflows to slow the growth of its ballooning foreign exchange reserves, the world's largest at $1,202 billion.

"The opportunity to play an active role in investing Chinese capital offshore represents to most -- if not all -- international firms the holy grail of investment management," says Shiv Taneja, at Cerulli Associates in Singapore.

Analysts said the new Chinese body would continue to seek out investment opportunities such as Blackstone’s initial public offering.

Peter Alexander, head of Z-Ben Advisors, a research firm in Shanghai, said the new body was likely to follow the $50 billion state pension fund, which last year appointed foreign institutions to manage its $1.5 billion of overseas investments -- a move that came after several years of preparation.

He said the body was likely to focus on specialist fund managers in areas such as private equity, commodities and real estate. Others believe traditional equity managers could also benefit.

Potential candidates include those firms that have been appointed by the state pension fund, such as UBS, Pimco, Invesco, State Street, Alliance Bernstein, and BlackRock.

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