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Investments

Objective and Approach

The objective of risk management is to put in place effective policies, mechanisms, systems, and processes for investment and operations to maximize the returns for the shareholder within an acceptable risk tolerance.

Risk management is a company-wide effort involving every business line, department, and individual. It is embedded throughout the investment life cycle, from the overall portfolio to general asset classes and to specific investment strategies and sub-strategies.

System and Mechanism

CIC’s comprehensive risk management system addresses eleven types of risk: market risk, credit risk, operational risk, liquidity risk, country risk, strategy risk, legal risk, reputational risk, geopolitical risk, information technology risk, and corruption risk. To ensure the orderly operation of investment activities within our risk tolerance, the company continues to enrich its risk management toolkits for all portfolio tiers, including the total portfolio, asset classes, and strategies/deals.

• Risk Management Characteristics

CIC adopts a sound risk management system as outlined below to effectively manage risk.

• Risk Management Organization

The Comprehensive Risk Management Committee is responsible for putting in place and maintaining a comprehensive risk management system for the company. Its sub-committees manage the risks of the company’s overseas investments and domestic equity investments.

CIC rigorously enforces its “three lines of defense” and continuously strengthens its risk management organization based on clearly delineated roles and responsibilities.

• Comprehensive Risk Management

As risk assets surged and safe-haven assets came under pressure in 2021, CIC revised its Guidelines on Enhancing Overseas Investment Risk Management to provide stronger policy guidance, improve risk awareness and management capabilities, and ensure the sound and steady operation of our overseas investments.

To guard against material risk events, we enhanced dynamic management of the negative list and proactively carried out forward-looking risk analyses. We also bolstered business continuity and contingency plans to ensure preparedness against extreme events. On the investment front, we conducted ex-ante risk identification and assessment and ex-post risk monitoring, and continued to enhance post-investment management and reviews. Management of both country risk and sovereign credit risk was made more robust. Updated risk management tools contributed to greater standardization and transparency in asset valuation.

Market Risk Management

As risk assets surged and safe-haven assets came under pressure in 2021, CIC revised its Guidelines on Enhancing Overseas Investment Risk Management to provide stronger policy guidance, improve risk awareness and management capabilities, and ensure the sound and steady operation of our overseas investments. To guard against material risk events, we enhanced dynamic management of the negative list and proactively carried out forward-looking risk analyses. We also bolstered business continuity and contingency plans to ensure preparedness against extreme events. On the investment front, we conducted ex-ante risk identification and assessment and ex-post risk monitoring, and continued to enhance post-investment management and reviews. Management of both country risk and sovereign credit risk was made more robust. Updated risk management tools contributed to greater standardization and transparency in asset valuation.

Credit Risk Management

CIC widened its scope of sovereign credit monitoring to cover all recipient countries. Regular updates were provided via our Sovereign Credit Risk Report, with analysis and early warning on potential country- and regionspecific credit risks. We conducted a comprehensive stock-taking of the way our IT systems implement our rules for managing counterparty credit risks, with a view to improving the way we manage counterparty credit risk. We also continued to track changes in the credit risk of our investees.

Internal Control and Operational Risk Management

CIC took further steps to enhance the effectiveness of its internal control and operational risk systems, giving particular emphasis to priority areas. We stepped up training and communication around compliance requirements. We also put in place enhanced internal authorization procedures, contributing to higher quality and efficiency in decision-making. More robust accountability requirements guided and incentivized investment managers to fulfill their responsibilities with competence and care. Taking a more granular approach to operational risk management, we carried out ongoing assessment updates, and enhanced supervision and oversight over critical investment operations, leading to heightened discipline and accountability.

Reputational and Compliance Risk Management

CIC strictly complies with the laws and regulations of all its investment destinations, respects local community concerns, and ensures information disclosure as required by law. The company put in place new guidelines for managing reputational risks at the corporate level and in private market investments. The company also improved its mechanisms for monitoring public perception and for analyzing, reporting, and mitigating potential issues of concern. Thanks to its diligence around compliance, CIC has earned widespread recognition as a responsible corporate citizen and respected partner.

Corruption Risk Management

CIC issued a new Handbook for Managing Corruption Risks Overseas and took steps to strengthen the detection and control of corruption risks at the source, including through dynamic assessment updates. Internal management procedures were strengthened, and revisions were made to the company’s Anti-Corruption and Anti-Bribery Declaration along with other supporting measures.

Geopolitical Risk Management

Enhanced analytical capabilities allowed the company to systematically strengthen its management of geopolitical risks.

IT Risk Management

CIC enhanced security management of electronic information, networks, computers, and information systems.


Investment Portfolio Decision-marking Process