China May Invest in J.C. Flowers Fund
February 8, 2008
China's state-owned investment fund is in advanced discussions to invest $3 billion to $4 billion in a new fund being started by J.C. Flowers & Co., the private-equity firm that has made a name for itself investing in distressed financial institutions, according to a person familiar with the matter.
A potential investment by China Investment Corp., which has $200 billion in assets, would be the latest sign that the newly formed government investment fund hasn't been deterred by the criticism it faced from investing in another buyout firm, Blackstone Group LP. CIC took a $3 billion stake in Blackstone last year right before the U.S. company's initial public offering, only to see its investment decline sharply in value when Blackstone's stock dropped as the buyout business fizzled. Then in December, CIC invested $5 billion in Morgan Stanley for a nearly 10% stake in the New York investment bank.
In an interview with The Wall Street Journal last week, Lou Jiwei, chairman of CIC and former vice minister of finance for China, said the state investment fund was looking to invest in "portfolios" of companies, rather than individual firms.
An investment in a fund managed by J.C. Flowers would fit that criteria. The U.S. firm, run by former Goldman Sachs banker J. Christopher Flowers, specializes in buying financial companies. His firm made headlines recently for backing out of buying student-loan provider SLM Corp., better known as Sallie Mae, for $25 billion. By investing in a new fund being formed by Flowers, CIC would be able to indirectly invest in different companies and also inoculate itself from any political backlash that could arise from investing directly in iconic American companies.
A spokeswoman for CIC said she was unaware of any discussions. J.C. Flowers couldn't be reached for comment.
The discussions between J.C. Flowers and CIC were earlier reported by the Financial Times on its Web site.
CIC was formally established in September to earn better returns on China's huge pile of foreign exchange reserves, which now total more than $1.5 trillion. That money had traditionally been invested in low-yield investments like U.S. Treasurys. Two thirds of CIC's initial $200 billion in capital has already been committed to investments in China's own financial sector.
Although the fund made waves with its investments in Blackstone and Morgan Stanley, its managers have said that they intend to allot the bulk of the money it has for international investments to professional fund managers. CIC said last month it had received more than 130 applications from money managers to help it with equity investors. It has set a deadline of next week for applications from managers to handle international fixed-income investments.