We’ve been talking a lot about the idea of ‘joint funds’ and SWFs working in concert over the past few months. In our recent survey of SWFs’ own asset managers, we asked a question about this new trend. According to the respondents, we can indeed expect this type of cooperation among SWFs. I think this a positive development.
I’ve argued before, SWFs can benefit from working together to facilitate local understanding. Academic research by Coval and Moskowitz (2001) has shown that investing locally (within 100 kilometers of the fund’s headquarters) can bump investment returns by over 1% due to information asymmetries. There are thus clear benefits to having local partners. Collaboration or clubbing that brings together two or three funds with diverse backgrounds into cooperation could maximize the effectiveness of the investment function in a specific economic geography.
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