Oct

13

Money Market Fund Freezes around $5.4 Billion of China’s CIC

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China Investment Corp, the sovereign wealth fund that bought stakes in reputed US finance firms before the market meltdown, might now have $5.4 billion frozen in a U.S money-market account.

Before the US financial markets came crashing two weeks ago, China Investment Corp had purchased stakes in Morgan Stanley as well as Blackstone Group LLC. One of its divisions, the Stable Investment Corp had in fact been revealed as the largest shareholder in Reserve Primary Fund on September 1, according to regulatory filings. However the market meltdown turned Reserve Primary Fund into the first US money-market fund in the last 14 years to leave its investors with losses. This compelled Reserve Primary Fund to suspend withdrawals last month thus leaving CIC with huge funds in frozen money market account.

Till recently China held all of its $1.8 trillion currency reserves in low-yielding U.S government debt instruments. However last year China set up the CIC to park about $200 billion into assets with higher rates of return like stocks as well as corporate bonds. Consequently it invested $5 billion in Morgan Stanley which is the second-biggest investment bank of the U.S and another $3 billion in buy-out firm, Blackstone which manages the largest leveraged buy-out fund. But the stock market crash left both firms with a loss of more than 70% of their market value.