But earlier this month, CIC plowed an additional $1.2 billion into Morgan Stanley.

From Alphaville:

"China SWF eyes Blackstone fund Posted by Gwen Robinson on Jun 19 05:09.

China Investment Corp, the country’s biggest sovereign wealth fund, is poised to invest $500m in a Blackstone Group hedge-fund unit, reports the WSJ. A hefty injection from China would signal that some big money is stepping off the sidelines as global markets stabilise. CIC is considering investing in a number of hedge funds, as CIC chairman Lou Jiwei is concerned his fund may miss opportunities near the bottom of the market, said people close to the fund.

This entry was posted by Gwen Robinson on Friday, June 19th, 2009 at 5:09 and is filed under Capital markets, Private equity. Tagged with blackstone, CIC."

Me:

Don the libertarian Democrat Jun 19 23:18

I'm surprised by this. It makes sense, but weren't they just complaining that they're angry because, other than US Treasuries, the US wasn't implicitly guaranteeing their assets? Especially corporate bonds and stocks? Also, they were complaining about lack of transparency. What's changed?

One blog put forth the following view:

http://seekingalpha.com/instablog/399221-graham-and-dodd-investor/9075-china-is-not-betting-on-anything

"China really is buying into Blackstone. Its principals read like a veritable Who's Who of former U.S. government officials. So China wants ties with the U.S. Establishment. That's the real meaning of their investment in Blackstone. The hedge fund exposure is basically besides the point, as far as China is concerned"

This makes it sound like China is paying for lobbyists. Given how much business the govt is handing over to Blackstone, the idea that they're paying for investors with ties to govt makes sense to me. But could China's talking with John Paulson and the other managers mentioned also be explained that way?

Rather, why doesn't it make sense for China to invest in hedge funds with a proven record of buying distressed assets and making money on them? And, going back to the influence point, does China believe that will help them get their assets guaranteed?

It seems like an interesting story to me, but it doesn't seem to be generating a lot of interest generally.

From the WSJ:
By JENNY STRASBURG in New York and RICK CAREW in Hong Kong

China Investment Corp. is poised to invest $500 million in a Blackstone Group hedge-fund unit as part of a broad effort to put cash to work while global markets are rallying but remain below earlier peaks.

A hefty injection from China would be welcome news for hedge funds, eager to raise fresh capital after brutal markets and an exodus of investors hurt the industry. It also would offer another sign that some big money is stepping off the sidelines as markets stabilize world-wide.

Companies and investors are watching to see if sovereign-wealth funds will once again channel significant money into new deals, after several were burned by high-profile U.S. investments during the financial crisis. Though Middle East funds have ratcheted up spending lately, some remain hobbled by woes at home.

CIC is considering opening its checkbook to a handful of hedge funds, a move that comes as CIC Chairman Lou Jiwei is concerned his fund may miss opportunities near the bottom of the market, according to people who work closely with the Chinese fund. That is a reversal in attitude from December, when Mr. Lou said he didn't have "the courage" to invest in the developed world's financial institutions because "we don't know what trouble they are in."

A spokeswoman for CIC and a spokesman for Blackstone declined to comment.

Set up in 2007 and capitalized by Beijing, CIC is one of the world's largest sovereign-wealth funds, controlling some $200 billion. The fund already knows Blackstone well, and has suffered some from the relationship. CIC invested $3 billion for a nearly 10% stake in Blackstone just before it went public in 2007, an investment that brought it ridicule in China when the private-equity firm's shares fell. Since Blackstone's IPO two years ago this coming Monday, Blackstone shares have dropped about 64%, leaving CIC with a loss of about $1.9 billion.

Still, CIC managers later struck a deal with Blackstone allowing the fund to increase its stake to 12.5%, signaling confidence in the firm's prospects. And committing capital to Blackstone's hedge-fund unit is a bet more on its expertise than its stock.

That Blackstone division has about $26 billion in investments doled out to hedge funds on behalf of Blackstone clients. One of the world's largest so-called fund-of-fund managers, Blackstone commands access to some of the biggest funds.

It isn't clear how much CIC might allocate to hedge funds. In the past, CIC officials have said they plan to farm out up to $80 billion to asset managers, with private-equity firms and hedge funds likely to get a chunk of that capital.

Prominent hedge funds have been talking to CIC for months. Eric Mindich of Eton Park Capital Management and John Paulson of Paulson & Co. are among hedge-fund bosses who have met with CIC representatives, among other Asian investors, in recent months, according to people familiar with the matter. Wall Street insiders see those hedge funds as on a relatively short list of managers more likely than peers to get CIC money, though such decisions could take months.

Investment staffers at the Chinese fund also have sought the hedge-fund managers' view of the credit crisis and global markets in general.

Last year, James Simons, head of big hedge-fund firm Renaissance Technologies, talked with CIC about selling a stake in Renaissance but didn't do a deal, people familiar with the matter said.

Spokesmen for the hedge funds declined to comment.

The China fund's plans don't necessarily mark a trend toward more global investments by sovereign-wealth funds. Temasek Holdings Pte. Ltd., Singapore's state-owned investment firm, this year has moved to focus more on Asia investments, selling off stakes in foreign banks at big losses.

In the Middle East, there has been continued deal activity. In March, Abu Dhabi investors snapped up a 9.1% stake in Daimler AG. And earlier this month, the government-backed investment company of Qatar said it is considering a deal to invest in Porsche Automobil Holding SE. The buying comes as the region's fortunes have started to turn around, thanks in large measure to climbing oil prices.

But some big Mideast players remain reined in. Kuwait, hobbled by political infighting and a banking crisis, withdrew from a planned joint venture with Dow Chemical Co. late last year, blaming the global financial crisis. And Dubai, another U.A.E. emirate, is still reeling from its property-market bust and lately has refrained from big international deal-making.

CIC has been ramping up activity. CIC in late 2007 put $5.6 billion in Morgan Stanley convertible securities whose value later plunged. But earlier this month, CIC plowed an additional $1.2 billion into Morgan Stanley. On Tuesday, CIC struck its first known property deal, agreeing to commit 200 million Australian dollars (US$158.9 million) to a financing facility for Goodman Group, Australia's largest industrial-property trust.

Elsewhere, CIC put $3.2 billion toward a $4 billion fund managed by J.C. Flowers & Co. to hunt for opportunities among financial institutions.

—Chip Cummins in Dubai contributed to this article."

Silo deals were proposed as a way of allowing a private- equity firm to control a lender by keeping the bank separate from its other investments

TO BE NOTED: From Bloomberg:

"Buyout Firms Elude Fed as OTS Lets Private Equity Acquire Banks

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By Jonathan Keehner and Jason Kelly

May 18 (Bloomberg) -- The Office of Thrift Supervision is opening a door the Federal Reserve has closed, allowing leveraged buyout firms to take control of banks amid the worst financial crisis since the Great Depression.

The OTS, which oversees about $1 trillion of assets at U.S. thrifts, approved MatlinPatterson Global Advisers LLC’s purchase of Flagstar Bancorp Inc. in Troy, Michigan, and may allow similar takeovers. That puts the agency at odds with the Fed, which has told private-equity companies it won’t permit a firm that isn’t regulated as a bank to own a majority stake in a lender, even if it walls off its investment in a so-called silo deal, according to a Fed lawyer who declined to be identified.

“This may give buyout firms the opportunity to make controlling investments that the Fed has denied,” said Patricia McCoy, who teaches banking and securities regulation at the University of Connecticut School of Law in Hartford. “The OTS has an interest in keeping remaining thrifts alive with fresh capital, and private equity is one of the only options available.”

Blackstone Group LP and Carlyle Group, the world’s two biggest LBO firms, are among those eager to snap up banks on the cheap after global losses tied to the credit crisis topped $1.4 trillion and slashed the valuations of lenders. While the Fed has set out guidelines that allow private-equity investors to increase their minority stakes in lenders it regulates, it has taken the position that conflicts exist when an LBO firm owns a bank and non-banking interests, said two people with knowledge of the matter.

‘Entertaining’ Deals

The Fed oversees national banks chartered by the government. The OTS is an office of the Department of Treasury that regulated 818 thrift institutions, including savings and loans and credit unions, as of the end of 2008.

The OTS is open to more acquisitions, like the Flagstar takeover announced in December, said Grovetta Gardineer, the agency’s managing director for corporate and international activities, in an interview.

“Flagstar is an indication that we’re entertaining these types of deals,” Gardineer said. “We scrutinize them closely, and every one will present a new and unique set of circumstances. We have had a significant amount of interest from private-equity firms who come in and meet with us.”

While thrift-industry assets at banks regulated by the OTS dropped 25 percent last year after three collapsed, including Seattle-based Washington Mutual Inc., the largest U.S. bank to fail, Gardineer said the agency isn’t approving private-equity proposals to stem the decline. Fees from assessments on regulated institutions accounted for 92 percent of the agency’s funds last year, according to its annual report.

Plunge in Hypo

The seizure of Washington Mutual erased a five-month-old, $1.3 billion minority stake held by TPG Inc., the Fort Worth, Texas-based LBO firm founded by David Bonderman.

J.C. Flowers & Co., a New York-based based private equity firm, lost money after leading a group that bought a stake in Hypo Real Estate Holding AG, Germany’s second-biggest commercial-property lender, for about $1.8 billion. Hypo shares have declined more than 93 percent since that deal was announced.

The losses have cooled investor interest in bank deals that don’t give control to private-equity managers.

“It’s a lot harder to get six smart guys to work together than to get one smart guy to work with himself,” said Paul Schaye, managing partner of New York-based Chestnut Hill Partners, which helps private-equity funds find deals.

Buying BankUnited

That view was echoed by Olivier Sarkozy, Carlyle’s co-head of financial-services investments in New York.

“While there are valid public-interest issues that would need to be discussed and addressed to everyone’s satisfaction, not being able to control a bank we invest in increases our risk and therefore results in our demanding a higher return,” Sarkozy said. “That in turn increases the ultimate costs to the taxpayer of the industry’s necessary recapitalization.”

Washington-based Carlyle is part of a group of private- equity firms led by former North Fork Bancorp Chief Executive Officer John Kanas that is interested in buying BankUnited Financial Corp., Florida’s largest bank, people familiar with the matter said last week. The deadline for bids for the Coral Gables, Florida-based lender was extended until tomorrow. Other participants in the deal are Blackstone, Centerbridge Capital Partners LLC and WL Ross & Co., to which Kanas is an adviser.

Ross, Flowers

Regulators have allowed individual investors to buy banks, even if they also run private-equity firms, as long as they do it with their own money.

J. Christopher Flowers, the founder of J.C. Flowers, bought First National Bank of Cainesville in Missouri last year.

Wilbur L. Ross, chairman and CEO of New York-based WL Ross, who became a billionaire by turning around distressed steel and textile companies, purchased control of First Bank and Trust Co. in Indiantown, Florida, earlier this year.

Ross, 71, has said that as many as 1,000 banks will succumb to mergers or failure in the current recession, providing opportunities for investors.

Silo deals were proposed as a way of allowing a private- equity firm to control a lender by keeping the bank separate from its other investments. While the Fed and OTS share their views about bank takeovers, the agencies operate under different statutes and recognize that they may have different opinions on silos, according to people familiar with the regulators.

‘Real Barriers’

“Under current law, a silo structure is the only possible way a private-equity firm that also controls non-financial companies could acquire control of a bank,” said Joseph Vitale, a partner at New York-based law firm Schulte Roth & Zabel LLP who advises LBO firms on investments in financial institutions.

H. Rodgin Cohen, chairman of Sullivan & Cromwell, the New York law firm that represented MatlinPatterson on the Flagstar deal, as well as other private-equity firms, defended the concept at a forum sponsored by Bloomberg on May 4.

“I see no reason why private equity should not be able to invest fully in banking institutions, take control of stakes,” Cohen said. “There are structures which will accomplish this, and you could put in real barriers to preserve the safeness and soundness of the institution and to prevent conflicts of interest.”

The Flagstar deal has worked out well for MatlinPatterson, the New York-based buyout firm founded in 2002 by former Credit Suisse First Boston colleagues Mark Patterson and David Matlin, who have also bought a home builder and an airline. The bank’s shares have more than doubled since the deal was announced on Dec. 17.

To contact the reporters on this story: Jonathan Keehner in New York at jkeehner@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net."