Mystery Fund Amassing Japanese Equities?

807208_kangaroo_signFrench newspaper Les Echos is reporting today that a “mysterious fund”, which it believes is linked to the China Investment Corporation, has been amassing large equity positions in some of Japan’s biggest companies. Yann Rousseau has the scoop (in French) from Nikkei Veritas. Apparently, an Australia based fund called SSBT OD05 Omnibus China Treaty (OCT) has, since 2008, accumulated roughly $22 billion in Japanese equity positions across a range of firms. This includes 2.1% of Hitachi, 1.7% of Nomura Holdings and 1.7% of Mitsubishi. To date, the OCT has been entirely passive (and rather discrete).

According to Rousseau, the fund’s (possible) connection to the CIC is raising a few eyebrows in Japan. If you recall, China ramped up its purchases of yen denominated assets over the summer, a move which caused concern for some Japanese policymakers due to the strength of the yen. Finance Minister Noda said in September, “I do not know what their true objectives are, but we would like to clarify their objectives.”

The question, then, is whether OCT is in fact a CIC subsidiary that was set up in Australia to fly under the Japanese radar in order to avoid causing further diplomatic tensions as China accumulated more yen assets. I have to say, that’s a bit hard to swallow.

Still, the CIC has routinely used wholly owned subsidiaries in foreign countries to facilitate its investment operations, such as Beijing Wonderful Investments, Stable Investment Corporation, Fullbloom Investment Corporation, and Best Investment Corporation (among others). But these special purpose vehicles were never meant to be secrets; the CIC has been pretty transparent about their existence and uses.

My guess as to what’s going on here is firmly rooted in the principle of Occam’s razor: If this is indeed a CIC subsidiary (which is still an open question), the Japanese and Australian authorities have probably been well aware of its existence from the start. So the only “news” here is that we (the general public) are just now learning about OCT for the first time.

But, if I’m wrong, we could be in for a really intriguing story…

This post originally appeared on the Oxford SWF Project website.