China Investment Corp., a $200-billion (U.S.) sovereign fund, is set to spend $2-billion buying U.S. distressed assets from property to infrastructure via three funds, including one managed by Goldman Sachs , sources briefed on the plan said on Tuesday.
CIC's latest swoop on U.S. assets comes after the state-owned investment vehicle lined up to invest up to $2-billion in U.S. mortgages under a U.S. Treasury-backed plan.
CIC, established by China's Communist government in late 2007, plans to invest $600-million to $700-million each in three distressed asset investment funds, including another managed by Oaktree Capital, said the sources, who declined to be identified as the process was confidential.
The name of the third fund was unknown, but the sources noted that all three funds to be invested by CIC would focus on debt-burdened U.S. assets which were hit by the financial crisis.
"It's a clear sign that China now wants to show confidence in the prospect of the U.S. economy as well as to quickly buy something undervalued before the crisis is all over," said one of the sources.
CIC, Goldman and Oaktree all declined to comment.
In May, a CIC delegation led by its president Gao Xiqing visited Goldman's New York headquarters, where Mr. Gao and Lloyd Blankfein, chief executive of the Wall Street bank, discussed a wide range of issues related to business co-operation, said another of the sources.
Two months later, the U.S. and China ended a first annual Strategic and Economic Dialogue with an agreement that the world's biggest and third-largest economies would lead the global economy out of recession, with China seeking safer investments in the United States.
"CIC knows it cannot ignore opportunities in the U.S. despite the lessons it has learned from its previous investments," said the second source, referring to CIC's huge paper losses on its ill-timed 2007 bets on Morgan Stanley and Blackstone.
"The more friends you have, the more opportunities you will find," he added.
Oaktree, one of the biggest distressed asset investors in the U.S., has been buying a wide range of assets during the crisis.
CIC has also been busy, spending billions of dollars in recent months to buy assets including Australian iron ore and British real estate.
A senior CIC executive told Reuters earlier this month the fund is now also seeking minority stakes in infrastructure and new energy projects.
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