The big money in China is starting to worry that by the time it starts to shop for undervalued assets outside its borders, the recovery may be underway and the bargains may be gone. China’s trouble is that a number of developed nations don’t want China to own or control strategic assets of companies which are considered critical to their national interests.
China’s way around the problem may be to put money into hedge funds that are using their expertise to pick up ownership in firms that need money but have strong businesses which should get stronger with the recovery.
According to The Wall Street Journal, “China Investment Corp. is considering opening its checkbook to Blackstone (BX) and a handful of other hedge funds, a move that comes as CIC Chairman Lou Jiwei is concerned China may miss opportunities near the bottom of the market.”
It is worth remembering that sovereign fund investments in distressed assets have not done very well over the last two years. A number of these pools of capital put cash into big money center banks and brokerage firms only to lose tens of billions of dollars when the credit crisis shaved 90% or better off the value of some financial firms. Putting more money directly into companies in the US or Europe or into hedge funds now carries the risk that the recovery is a mirage and that the recession could last well into next year.
The Chinese may feel that their capital is not being properly deployed because it is not taking the risks that often lead to a doubling or tripling of an investment. The trouble is that most of the companies that are good bets have already been spotted by intelligent investors and their values have begun rising. What is left may be mostly firms that no one wants because they have no futures. That’s where China’s money could go.
Douglas A. McIntyre
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