The Impediments to Pension and Sovereign Fund Collaboration

As part of my frontier finance research project, I’ve been doing quite a bit of work on the impediments to pension and sovereign wealth fund collaboration and co-investment. I am beginning to understand more and more why it’s not happening...

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As part of my frontier finance research project, I’ve been doing quite a bit of work on the impediments to pension and sovereign wealth fund collaboration and co-investment. As frequent – and probably even occasional readers – of this blog know, I tend to go on and on about pension fund collaboration, cooperation and co-investment and their potential benefits. Why? Because the economic geographer in me is convinced that like-minded, frontier investors should be sharing networks, resources and even deals. These are funds that currently try to in-source a variety of asset classes, and some are struggling to do so effectively. A community of like-minded investors could surely help in this regard.

But it’s not really happening (yet). And I am beginning to understand more and more why this is the case. The factors constraining peer-to-peer collaboration and co-investing seem to be of five types:

1) Structure: Can you actually set up a formal mechanism for sharing deals that is agreeable to all parties? (e.g., loose or formal; discretionary or non-discretionary.) 2) People: Can you get non-executive staff to coordinate? Can the investors hire the talent they require to be good partners? (e.g., experienced or novice; seconded staff or external hires.) 3) Governance: How do you get buy-in from fund leadership for the requirements? (e.g., public bureaucracy; resources constrained; allergic to innovation.) 4) Institutional: Can an investor find like-minded investors with the same philosophy? (e.g., culture; norms; process, philosophy) 5) Regulation: Are funds going to have to face off against the in-house lawyers? Do their local rules prevent international collaboration? (e.g., fiduciary duty.)

So while the benefits of collaboration and co-investment among peers seems clear, the impediments are equally serious. But I remain optimistic. Why? Because now that we know the problems, we can start working on solutions. And that’s what I’ve been doing...

sovereign wealth fund pension fund frontier finance research frontier finance research project
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