If relationships between money managers and sovereign wealth funds are in flux, ties among sovereign wealth funds could prove complex as well — if the Korea Investment Corp.'s latest annual report is any indication.
In his summary of the sovereign wealth fund's activities in 2014, Hongchul “Hank” Ahn, the KIC's chairman and CEO, stressed the need for the fund's investment portfolio to grow quickly beyond its $86 billion value in search of “economies of scale so that we may compete on an even footing with other sovereign wealth funds across the globe.”
The same report highlighted the KIC's efforts to forge mutual cooperation agreements with other sovereign wealth funds — most recently with Qatar Investment Authority in November — to pursue co-investments.
Asked about the mixed message, a KIC spokesman said finding the right balance between cooperation and competition will leave the Seoul-based fund in the “best position ... to generate high returns.”
As a bigger fund, KIC should have access to “better deal flow,” even as closer ties with other big sovereign wealth funds open the door to attractive, large-scale investment opportunities through the “sharing of quality information,” the spokesman said.
In an interview, Adrian Orr, CEO of the NZ$30 billion ($20.46 billion) New Zealand Superannuation Fund and deputy chairman of the International Forum of Sovereign Wealth Funds, predicted that greater cooperation among those big funds will be the order of the day — in part because of the growing importance of identifying private markets investment opportunities.
Access to opportunities, capability to effectively manage an investment and capital are all required to invest successfully, but “access is the main question,” noted Mr. Orr.
Co-investing alongside other sovereign wealth funds in their own countries basically amounts to “standing on the shoulders of giants,” with the prospect of further value-added investments for all parties, he said.
The question of access to opportunities was touched on in the Global Sovereign Asset Management Study 2015 released by Invesco Ltd. on June 9. Sovereign wealth fund executives cited private markets deal availability as a top concern, with 53% highlighting sourcing of deals as their top challenge.
In the study, sovereign investors identified infrastructure deal sourcing as a particular problem. Growing interest in infrastructure is a major factor driving the pickup in collaboration, with a range of benefits that include scale benefits, better deal flow and the ability to take advantage of the due diligence of funds with the greatest local knowledge.