HONG KONG--China Investment Corp., the country's sovereign-wealth fund, recorded a 2.1% decline in the value of its global investment portfolio last year, it said in its first annual report, because most of its assets were parked in cash.

The fund, which has spent about $10 billion on investments in Morgan Stanley and Blackstone Group LP, took less of a hit than other major players in the global financial crisis that were more broadly exposed to global markets. The fund benefited from the slow pace at which it invested capital overseas as 87.4% of its holdings were in cash and cash equivalents, compared with 3.2% in equities and 9% in fixed-income securities.

Set up with $200 billion of foreign-exchange reserves in September 2007, CIC's assets grew to $298 billion by the end of last year as it acquired stakes in China's banks that have risen in value.

The performance of CIC has been a sensitive issue for Beijing, and its disappointing high-profile investments in Wall Street firms have sparked some criticism by domestic government officials. Some have accused CIC of supporting foreigners at the expense of local firms. That makes CIC's apparent ability to outperform other sovereign funds important to Beijing.

CIC didn't give much detail on specific investments and their performance or give a detailed breakdown on the metrics used to gauge the returns. It is unclear whether the measure of returns is according to Western accounting standards.

The annual report sheds a bit more light on the development of a state-owned fund expected to provide a big infusion of capital into global markets this year. Hedge-fund managers are expecting CIC to dole out billions in coming months for them to manage, and it has already written roughly $500 million in checks to both Blackstone and Morgan Stanley's fund-of-funds units.

"With ample funds, CIC has already made sufficient preparations to welcome investment opportunities in 2009 and beyond," said CIC Chairman Lou Jiwei in the report.

After making a splash in 2007 with initial investments in Morgan Stanley and Blackstone that triggered domestic criticism as the value of those stakes dropped, CIC spent much of last year focusing on hiring staff and establishing its internal structure. It also placed funds with outside managers, including a private-equity fund managed by J.C. Flowers & Co.

By the end of May, CIC said it has hired 194 staffers, including 73 with overseas work experience and 18 who aren't Chinese nationals. The sovereign fund also has undergone an internal restructuring of its investment teams to solve brewing conflicts among staff.

CIC also benefited from its inheritance of the government's stakes in Chinese banks and securities firms. China's financial institutions have been relatively sheltered from the financial crisis because of limited overseas liabilities. CIC booked a 6.8% overall return on capital last year, after taking into account the rising value of assets held by and dividends earned by its domestic investment arm, Central Huijin Investment Ltd.

CIC said in the report issued on Friday that it outperformed many other sovereign-wealth funds, university endowment funds, and pension funds, after it slowed the pace of investment last year to minimize the impact of a downturn in global financial markets.

The report didn't give a breakdown of its gains in the domestic market but said Central Huijin recorded a "marked increase" in the value of its long-term equity investments in Chinese financial institutions over past years. Those gains have almost certainly grown in 2009 as Chinese banking stocks have risen strongly.

At the end of 2008, Central Huijin owned 35.4% of the country's largest bank, Industrial & Commercial Bank of China Ltd. It owns 67.5% of Bank of China Ltd., 50% of Agricultural Bank of China Ltd., 48.2% of China Construction Bank Corp. and 48.7% of China Development Bank Corp.

Central Huijin was established in December 2003 and mandated by the government to invest in major state-owned banks and other financial institutions.

-Victoria Ruan in Beijing contributed to this article.