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China’s sovereign wealth fund has sold its stake in Blackstone, ending a controversial 11-year ownership of the US private equity group that reflected early attempts by Beijing to broaden its international investments.
Neither Blackstone nor Beijing disclosed why the China Investment Corp gave up its ownership stake, which originally accounted for 9.9 per cent of Blackstone when it was acquired in 2007 for $3bn.
But the move comes amid mounting tension between Washington and Beijing over international economic policy, with the White House citing China’s export and trade policies as threats to America’s economic future. Stephen Schwarzman, Blackstone’s chief executive, has served as an informal economic adviser to President Donald Trump.
One senior executive at the sovereign wealth fund said the stake was “offloaded very gradually and mostly before Trump,” however. Beijing has also sought to reign in foreign investments by China’s private sector over the past year, so the Blackstone divestment may be part of a broader international retrenchment.
CIC bought and sold stakes in Blackstone in the years following its original 2007 investment in an effort to recoup its early losses, but began reducing its stake over the past 18 months, according to people on both sides.
Value of CIC’s assets under management at the end of 2016
The original acquisition was made by the Chinese government just before CIC was launched, and was seen at the time as a loosening of China’s attitude towards using its vast wealth to invest in Western equities.
Blackstone quietly disclosed the sale in a regulatory filing last week, though it is unclear how much CIC owned at the time of the disposal.
“We greatly value our partnership with CIC and are grateful for their successful, long term investment in our firm,” said a Blackstone spokesman. “We continue to expand this important relationship as one of CIC’s major asset managers and look forward to working closely together.”
A spokesperson for CIC, one of the largest investors in the world with $813bn in assets at the end of 2016, declined to comment.
The return on CIC’s investment is difficult to work given its trading of the stock over the past decade. When the fact that CIC held the stake for almost 11 years is factored in, “it is not as compelling as any market benchmark,” the CIC executive added. “On a net basis, we made money if you take into account price changes and dividends.”
Blackstone shares trade about 11 per cent higher than the 2007 IPO price. The group said any investor who bought shares at the IPO and held on would have made about 117 per cent.
The sale comes at a time the White House has made clear it views Chinese capital with suspicion. Mr Trump moved this week to block the takeover of Qualcomm by Singapore-based Broadcom after Cfius, the US agency that screens foreign investments in the interest of national security, raised concerns about China’s role in key technologies.
CIC has been criticised in China for its involvement with the US private equity group, in particular after shares in Blackstone fell after the IPO. The relationship between the two underscored the difficulties that CIC had in balancing the politics of Beijing and the adoption of a commercially driven investment strategy.
“For CIC to lighten the connection was sensible,” said one former adviser to CIC. The investment in Blackstone “was always heavy political baggage”, he said.
In recent months, CIC has been selling down financial assets. A stake in Morgan Stanley, which was acquired soon after CIC was established in the fall of 2007, is below the threshold for disclosure. One executive told the FT that the extent of CIC’s holding was not clear.
CIC made the investment in Blackstone shortly before the firm’s stock market listing in the spring of 2007, securing a 10 per cent discount to the IPO price. But as the financial crisis approached, shares fell and CIC was attacked in social media for wasting money that had been earned by workers in China.
Blackstone continues to work with CIC, and has a close relationship with both the sovereign fund and the Chinese government, according to executives. Blackstone sold Logicor, a logistics and warehouse property owner, to CIC last year for $14.3bn. In December, it took a 10 per cent stake in the transaction and won the bidding to manage the assets on behalf of CIC.
Blackstone’s then-president Tony James was in Beijing at the end of last year, one of the few foreign investors invited to address the State Administration for Foreign Exchange’s investment outlook meeting.
In 2016, CIC’s overseas investments generated a net return of 6.22 per cent and a net cumulative annualised return of 4.76 per cent since CIC’s inception, according to its annual report.
Additional reporting by Sherry Fei Ju in Beijing