China's sovereign fund mismanaged some investment: audit

Wed Jun 18, 2014 6:01am EDT
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BEIJING (Reuters) - China's $575-billion sovereign wealth fund mismanaged some of its overseas investments between 2008 and 2013 that led to losses, the country's top auditor said on Wednesday, without specifying the size of the loss.

The National Audit Office said some employees in China Investment Corp (CIC) [CIC.UL] did not conduct adequate due diligence before investing in 12 overseas projects in the last six years.

The CIC employees subsequently also failed to track the performance of these investments, it said.

The fund also breached regular procedures when it hired external managers for a few of its foreign projects, the report added.

In addition, several CIC units within China, such as Central Huijin, China Jianyin Investment, China Investment Development Co and China Zhongtou Trust Co, were also found to have irregularities in their businesses.

These include breaking away from their core businesses and venturing into the real estate sector, and funding illegal property projects.

Created in 2007, CIC is tasked to help China invest its $3.95 trillion-and-growing foreign exchange reserves. But because of the mammoth size of China's national savings, the government has formed other domestic funds that rival CIC in the hope of further improving investment returns.

CIC reported an annual return of 10.6 percent in 2012, reversing from 2011's loss of 4.3 percent. Its cumulative annualized return since inception is 5 percent.

The state auditor also released separate reports about Bank of China (601988.SS: Quote), the country's fourth-largest bank, and Agricultural Development Bank of China, a state-owned bank that supports the government's farm policies.   Continued...

A Chinese national flag flutters outside the headquarters of the People's Bank of China, the Chinese central bank, in Beijing, April 3, 2014. Picture taken April 3, 2014.