China's CIC to launch $4 billion fund with JC Flowers

By George Chen

NEW YORK (Reuters) - China Investment Corp (CIC), the country's $200 billion sovereign wealth fund, has signed a deal with J.C. Flowers & Co to launch a $4 billion private equity fund to focus on investments in U.S. financial assets, despite increasing worries over the snowballing credit crisis, a source briefed on the situation said on Thursday.

Beijing-based CIC will become a limited partner of the new private equity fund, in which CIC will provide about 80 percent of the contributions, the source said.

New York-based private equity firm J.C. Flowers, run by former Goldman Sachs banker Christopher Flowers, will offer about 10 percent of the money, said the source who declined to be identified as he was not authorized to speak to the media.

There will also be several other general partners who will cover about 10 percent of capital, the source said, adding that general partners have already been selected.

Representatives of CIC and J.C. Flowers could not immediately be reached for comment.

It will be the first private equity fund to be launched by CIC since it was established by the Chinese government in late 2007 as part of Beijing's plan to diversify the investments of its huge foreign exchange reserves and to seek better returns from global markets.

The deal, which also makes J.C. Flowers the first overseas private equity fund manager appointed by CIC, came after several months of negotiations and J.C. Flowers eventually agreed to accept "tougher than usual" conditions for the partnership, the source said.

"People had been worried about whether CIC would still launch the fund as planned, amid the worse financial environment in the U.S.," said the source. "But I have to say, now the top priority of CIC may be nothing but how to spend its money quickly."