Like everyone else on the planet, I’ve got social networks on the brain today. And that’s probably why this comment by the Korea Investment Corporation’s Scott Kalb really caught my eye. Here’s what he said:
“Sovereign wealth funds are a fairly new phenomenon, but their power and influence is destined to grow. Companies are reaching out directly to sovereign institutions because they not only control large pools of capital but also have a very long-term investment orientation...I think partnerships are going to be the wave of the future. We have recently teamed up with several other sovereign institutions to make direct investments — seven individual transactions, to date, representing billions of dollars. And when you do that, you deepen your network, lower the cost structure for everybody involved and share your know-how.”
I can’t tell you how often I hear similar stories from senior managers at institutional investors around the world. There is a widespread and sincere interest among the Giants to invest on a direct basis.
- Why? Because of the misaligned incentives, high fees, poor returns, and short-termism embedded in most third party management agreements.
- How? Yes, that’s the far better question. How do these funds get the talent? How do they get access to deals? How do they get local knowledge of foreign markets? How do public pension and sovereign funds compete with private sector players? It seems the answer that keeps coming back when I pose this question is the same: networks (social or otherwise).
Institutional investors are, today, much more willing to think creatively about deploying their capital, such as through in-house teams, but they are doing so with the idea that they’ll be networked with like-minded investors around the world. These investors are working together so they can play in markets where the private sector doesn’t really compete (e.g. infrastructure, agriculture, etc.).
Anyway, I find this new geography of finance, in which institutional investors are looking to one another to provide the services that were once provided by Wall Street and London, just fascinating. Now who’s going to build “The Fundbook”?
