China fund loses face About $5 billion invested in Reserve Primary
By RICK CAREW | THE WALL STREET JOURNAL ASIA

HONG KONG -- China's sovereign-wealth fund faces another embarrassing investment snafu after parking about $5 billion in a U.S. money-market fund that froze redemptions following losses on its holdings.

An official at China Investment Corp. confirmed it had made the investment. As of Sept. 1, CIC owned 11.13% of institutional-class shares in the Reserve Primary Fund through a unit called Stable Investment Corp., according to a regulatory filing by the fund with the U.S. Securities and Exchange Commission. A spokeswoman for CIC declined further comment.

The Reserve Primary Fund, the flagship of Reserve Management Corp., became the first money-market fund in 14 years to "break the buck," meaning its net asset value fell below $1 per share.

China's sovereign-wealth fund has taken a hit on a number of its bets made on the U.S. CIC invested $5.6 billion in Morgan Stanley last December and $3 billion into Blackstone Group LP in June 2007. Both investments have substantially deteriorated in value since then, hurt by the global financial crisis.

CIC's investment of an undisclosed amount in Visa Inc.'s initial public offering is one bright spot in an otherwise bleak overseas portfolio. Visa shares were at $54.05 in midmorning trade Monday in New York, up from the $44 offering price.

The Reserve Primary Fund Class Institutional ran into trouble this year due to its holdings of $785 million worth of commercial paper and medium-term notes issued by now-bankrupt Lehman Brothers Holdings Inc.

Reserve Management said on Oct. 2 that it plans to distribute $20 billion out of the Reserve Primary Fund on or around Monday, representing 32% of the fund's assets as of Sept. 15. It said it would continue to distribute funds as assets matured but would avoid selling at "fire-sale prices" because that wouldn't be in the interest of shareholders.

It is likely that China's fund will see a piece of that distribution this month. Reserve Management hasn't detailed timing for future payouts.

A Reserve Management spokeswoman didn't respond to requests for comment.

Bloomberg News first reported CIC's holding in the Reserve Primary Fund.
—Diya Gullapalli in New York contributed to this article.

Write to Rick Carew at rick.carew@wsj.com