Mismanagement leads to investment loss at wealth fund

Auditors say that CIC erred in due diligence and oversight of 12 overseas projects

Management irregularities at China Investment Corp, the nation's sovereign wealth fund, led to overseas investment losses that could widen, the National Audit Office said on Wednesday.

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The National Audit Office conducted an audit on CIC last year and identified problems such as dereliction of duty, inadequate due diligence and post-investment management in 12 overseas investments made by CIC between 2008 and 2013. Six of the investments were unprofitable, four of them had unrealized losses, and two may potentially lose money, it said.

Established in September 2007, CIC had total assets of $575.18 billion by the end of 2012 and had a net profit of $77.4 billion that year. Its return on overseas investment exceeded 8 percent in 2013, executive vice-president Liang Xiang said in March. The return was lower than the 10.6 percent return in 2012, but much higher compared with a 4.3 percent loss in 2011, according to the company's annual report.

Auditors also found irregularities at CIC's domestic units and weaknesses in financial management.

For instance, Central Huijin Investment Ltd did not conduct an asset appraisal according to regulations in 2011 and lost a legitimate income of 1.26 billion yuan ($202 million) by transferring its equity holdings in a leading domestic securities company at cost price.

In the same year, China Jianyin Investment Ltd, another domestic unit of CIC, bought 296 million shares of Bank of Shanghai Co without conducting an asset appraisal as required. Furthermore, the company poured big money into the real estate sector and the financial industry between 2009 and 2012, even though the State Council had asked it to shift the investment focus to other industries.

CIC was also purchasing commercial insurance for critical illness for its employees between 2011 and May 2013 in addition to basic and supplementary medical insurance.

It also paid individual income tax on behalf of its employees.

The company's chief public relations officer was unreachable for comment on Wednesday.