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Post-crisis Political Realities Changing SWF Dynamics – Synergetic Investments by SWFs Expand Under the Banner of Corporate Governance and Transparency

Cooperation Begets Commercial Success

Published August 18, 2009

Ashby Monk

Natsuko Waki of Reuters has a great article out this morning on SWFs working in concert, which is a recurring theme on this site.* Indeed, Waki has picked up on the fact that SWFs are increasingly making joint strategic investments in order to better manage investment risks and maximize returns:

“State-owned funds from China, Singapore, Malaysia , Korea, Abu Dhabi and Kuwait are among those which have recently signed agreements to form investment partnerships with each other.”

While we have looked at these issues at length, Waki still advances our work by securing some elite interview evidence. According to Alexander Mirtchev, the director of Kazakhstan’s SWF:

“They [the SWFs] realize that their level of expertise is not universal and find that obtaining additional expertise via cooperation is a viable option for them. They are sharing risk and enabling access to welcome co-financing…In the crisis and post-crisis environment, such cooperation allows them to achieve a new level of legitimacy in markets where they have not operated before…Recent examples of SWFs working together are much more commercially oriented than having any political imperative.”

This is fascinating (and gratifying). Part of my interest in SWFs working in concert was based on the idea that such partnerships are illustrative of these funds’ sincere commercial orientation. As I said 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.”

Indeed, I view these cooperative arrangements as a sign that SWFs are maturing into more sophisticated investors; cognizant of their limitations and looking for the tools to overcome them. This in turn (as Waki suggests) will contribute to SWFs’ international acceptance. For example, that Mubadala is a welcome partner in France is a testament to the positive effect that these joint funds have on legitimacy.

*Waki’s article also draws on our survey of SWF asset managers. If you are interested, you can find it here.