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August 18, 2009

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CIC seeks to invest in US mortgages

CHINA'S US$200 billion sovereign wealth fund, which made big paper losses on stakes in Morgan Stanley and Blackstone, is set to invest up to US$2 billion in United States mortgages as it eyes a property market recovery, two people with direct knowledge of the matter said yesterday.

China Investment Corp 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 Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF).

Under the Public-Private Investment Plan 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 US$40 billion in toxic securities from banks.

Compared with TALF, 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 Corp, 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 move comes after the US and China ended their first annual Strategic and Economic Dialogue late last month agreeing to lead the global economy out of recession, with China seeking safer investments in the world's leading economy.

"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 US$2 billion for a US$200 billion sovereign fund is not big money, but it can be regarded as an innovative and positive option for Chinese investment," the source continued.

CIC is in talks with nine designated PPIP managers, including 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.


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