China Investment Corporation (CIC) is eying infrastructure investments in emerging economies in an effort to bypass strong demand for core assets in developed countries, delegates at Infrastructure Investor's Berlin Summit heard today.
As part of a panel dedicated to sovereign wealth funds, Tao Mi, infrastructure director at the $653 billion institution, explained that CIC was “feeling the inflated pricing” of assets in the OECD. This was prompting it to seek better risk-adjusted returns in less established markets.
“Being a government entity located in Beijing is not very helpful when entering auctions in developed markets. In emerging markets, on the other hand, there seems to be a critical need for infrastructure that no one so far wants to tap. So we've decided to reconsider our infrastructure program to push more into developing countries.”
He said CIC was particularly attracted to East Africa, where “strong population growth, natural resources, and improving governance lay out the foundations for us to be confident we can deploy large amounts of money.”
As part of its revamped strategy, Mi added that the fund was increasingly keen to invest in greenfield projects. “Sovereign wealth funds tend to have a much bigger balance sheet than other institutional investors; their capital is evergreen. So they have much more flexibility to structure deals and be patient. The J-curve effects incurred during the construction period can be absorbed by our large portfolio.”
He said infrastructure could have a crucial role in integrating resources from various sectors, allowing investors to be able to offer a “package deal” to emerging markets – involving for instance energy, agriculture and infrastructure components – as these strive to create jobs and unlock economic growth.
He cited several greenfield container port projects in Tanzania and Kenya as examples of investments CIC is currently pursuing. “Logistics is really the bottleneck in those countries. So today we're investing in the port terminal but we might also consider funding the surrounding facilities and even some railway.”
Founded in 2007, CIC is responsible for managing part of China's foreign exchange reserves. It started its infrastructure programme in 2009.
“Moving into emerging markets doesn't mean we won't do anything in developed countries anymore. These are still important – but emerging markets are a natural expansion of our current infrastructure programme.”