SWFs are increasingly working together to achieve their objectives. Last week we saw CIC, GIC and KIA all come together to support the Blackrock acquisition of Barclays Global Investors. This week the KIC signed cooperation agreements with two foreign public funds–Malaysia’s Khazanah Nasional Berhad and Australia’s QIC–to “expand co-operation” and announced their intention to sign more such agreements.
Working in concert or clubbing on deals is to be expected. As I noted in a previous post, SWFs can fruitfully work together to facilitate local understanding in foreign markets. This in turn can lead to higher returns over the long term thanks to information asymmetries obtained by local investors. In short, by bringing together two or three funds with diverse backgrounds into a cooperative arrangement, the effectiveness of the investment function in a specific economic geography is maximized.
Ironically, during interviews with Western policymakers, the prospect of SWFs ‘working in concert’ was typically raised as an issue of concern. According to these individuals (who were perhaps stuck in the 2007/2008 protectionist mindset), the fear was that these funds could work together to achieve political objectives without any single fund raising red flags. However, the recent examples of SWF cooperation seem to be based on commercial criteria exclusively.
Indeed, KIC articulated the rationale behind its recent agreements as a way to increase investment opportunities and facilitate understanding so as to create and sustain national wealth. In addition, the recent collaboration between Mubadala and France’s Strategic Investment Fund is all about ensuring commercial success.
So, rather than representing “death by a thousand cuts” (as one Western policy maker once told me was a concern), these cooperative arrangements are more likely a sign that SWFs are maturing into more sophisticated investment funds; cognizant of their limitations and looking for the tools to overcome them.
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