Big institutional investors around the globe are cooperating and collaborating on investment ideas to an ever-greater extent as they seek better control over, and returns from, their portfolios.
That sharing of experience, deal flow and due diligence — while not entirely new — is taking on greater significance as investors bolster in-house management capabilities and, increasingly, move away from awarding hands-off mandates to external money managers.
“Information sharing, transaction sharing, experience sharing” among long-term investors has “really accelerated over the past two to three years,” noted William Royan, the Toronto-based head of relationship investing with the C$129.5 billion (US$121.5 billion) Ontario Teachers' Pension Plan.
Ontario Teachers' close ties with institutional heavyweights such as Singapore's GIC Private Ltd. and Temasek Holdings (Pte.) Ltd., China Investment Corp. and the Abu Dhabi Investment Council, have “dramatically expanded” the range of investments Ontario has been able to make in recent years, said Mr. Royan.
Other asset owners struck a similar tone.
For the New Zealand Superannuation Fund, it's a matter of identifying peers “who we're most like” in areas such as governance, portfolio management and investment time horizons, and working together “to find better ways to be closer” to investment opportunities, said Matt Whineray, the NZ$24.8 billion (US$20.4 billion) fund's Auckland-based general manager of investments.
A number of asset owners said the common pressures they work under make for an alignment of interests they can't necessarily find when dealing with investment banks or third-party money managers.
Still, selecting institutional partners isn't easy.
Mr. Whineray — who pointed to the C$76.1 billion Public Sector Pension Investment Board, Montreal; the C$70 billion Alberta Investment Management Corp., Edmonton; and the Abu Dhabi Investment Authority as some of his fund's closest peers — said the need to get the alignment right requires approaching those relationships like a marriage.
“The thing we gain is perspective,” said Stephen Forshaw, managing director, corporate affairs, with Temasek Holdings, Singapore's S$215 billion (US$171.3 billion) sovereign wealth fund. Those ties enable Temasek “to become more aware of other opportunities, build our networks and understand more about each other's interests,” he said.
“For us, it's not a competition; we're very comfortable with bringing others to the table, and ourselves being invited to the table,” said Mr. Forshaw.
Every big investor claims to be “long term,” but relatively few have the scale of assets or the luxury of time in meeting their liabilities to be long term in practice, said Mr. Royan. When such investors are able to act together, it makes for a “very attractive investment environment,” he said.
That search for soul mates might be one ripple effect of the 2008 global meltdown, which found institutional investors fretting that other investors in the same assets could be forced to sell at the worst possible time.