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China to buy US assets via GM pension

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The Chinese government has agreed to buy investment stakes currently held by General Motors’ pension plan, in a deal that will make Beijing a sizeable investor in many of the US and Europe’s largest private equity funds.

The State Administration of Foreign Exchange, which manages China’s more than $3tn in foreign exchange reserves, will pay $1.5bn-$2bn for GM’s positions in blue chip private equity funds managed by firms including Carlyle Group, Blackstone and CVC Capital Partners.

Performance Equity, an advisory firm that manages pension investments for GM and its affiliates, is one of many traditional private equity investors who are reducing their investments with private equity groups in order to lower the risk of their portfolios.

Investors in private equity typically agree to lock up their money for as long as 10 years, but can cash out earlier by finding a buyer for their stake.

According to people familiar with the transaction, Performance Equity has notified several large private equity firms that it will be selling some of its fund stakes over coming months.

The deal with Safe, which has not yet been finalised, is secretive even by the discreet standards of private equity. “It was very below the radar,” said one investment adviser. “There is clearly concern about selling US assets to China, especially in an election year .”

The private equity industry has emerged as a major issue in this year’s US presidential election. Mitt Romney, the Republican candidate and founder of Bain Capital, has had to fend off criticism that the companies it acquired actively outsourced US jobs.

Lexington Partners, a specialist investor in second-hand private equity stakes, is advising Safe and will administer the complex portfolio, one person briefed on the situation said. It may also buy some GM positions that Safe does not want. The New York-based investor was one of three firms mandated in 2010 to pick up $1.5bn of private equity investments for China Investment Corp, the country’s sovereign wealth fund.

Safe, GM, Performance Equity and Lexington Partners declined to comment.

In 2008, Safe invested $2.5bn with TPG , some of it in investment vehicles that went on to lose $1bn in an ill-timed investment in Washington Mutual, the distressed lender.

Safe, which makes virtually no disclosure about any of its investments, has traditionally invested about half of China’s foreign exchange reserves in US government bonds, though it has sought riskier assets recently.

Additional reporting by Simon Rabinovitch in Beijing


Eric D. Schwerin
Rosemont Seneca Partners, LLC
1010 Wisconsin Ave., NW
Suite 705
Washington, DC 20007
(202) 333-1880
eschwerin@rosemontseneca.com
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