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China Investment Corp. Playing Hard Ball

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Did you know that as of September 2007, Warren Buffet is the second richest man in the world with a net worth of around $52 Billion. The core of his strategy was investing in insurance companies, due to the large cash reserves they must keep on hand to pay out future claims. Essentially, the insurer does not own the reserve, but may invest it and keep any proceeds.
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China Investment Corp. Playing Hard Ball

Friday, 17 October 2008

By Andrew Carpenter
China Investment Corp., the nation's $200 billion sovereign wealth fund, has withdrawn its investment from the Reserve Primary Fund, a US money-market fund that halted redemptions last month.
But, CIC may still lose $60 million, or more, simply because Reserve Primary looks as if it will refuse to pay back the entire investment.

The flap started last month when Reserve Primary suspended it clients’ right to withdraw funds after becoming the first US money-market fund in 14 years to leave investors with losses.

But, the Chinese say they shouldn't have to bear the potential three percent loss in principal because CIC had given its instruction to redeem the investment before Reserve Primary's suspension.

In an emailed statement, CIC said its Stable Investment Corp. unit will soon receive principal and interest equivalent to 35% of its purchase of Reserve Primary.

No longer a shareholder of the money fund, CIC is now its creditor.

I hear that hopping mad CIC officials, along with some high ups in Beijing, are in talks with Reserve Primary officials demanding to be repaid on the remainder of the investment. It is, ahem, strongly emphasizing the US fund’s obligation.

If it hasn’t figured it out yet, Primary Reserve should probably come to its senses and consider that the Chinese central government is not one to be trifled with.

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