You really have to admit, this is an elegant solution to an intractable problem. I envision a group of sovereign funds or pension funds coming together in an alliance in much the same way airlines have done through OneWorld or Star Alliance; they’d compete in some areas but agree to collaborate in areas where there is mutual benefit. In the case of the airlines, the partners focus on different geographic territories, so it makes sense to collaborate instead of trying to build an organization that can cover the whole planet. So they code-share and link rewards travel, which gives their local operations a global reach. Why can’t institutional investors collaborate in a similar manner? Why doesn’t the IFSWF in effect become the Star Alliance of sovereign funds? The Sovereign Alliance!
Anyway, this is why it’s so much fun being an academic: I get to write stuff that makes absolute sense intuitively but, in practice, is probably impossible to implement. The truth is this: It’s really, really hard for institutional investors to collaborate. It’s all about finding like-minded individuals within like-minded institutions that are willing to accept “No” 10-20 times to co-investment opportunities before they hear a single “Yes”. It’s about developing relationships, trust, and all of those things that are extremely hard to formalize and institutionalize in legally binding ‘Alliances’.
In fact, some funds and people are trying desperately to formalize and institutionalize collaboration right now, and I can guarantee you that all those individuals will tell you the same thing: It’s really hard. And when you add lawyers into the mix, collaboration moves somewhere between really hard and impossible.
Nonetheless, I remain absolutely and utterly convinced of the logic of collaboration. And I also think it’s worth the effort to find ways to work together. Here’s hoping that a new ‘Sovereign Alliance’ or ‘OneWealthFund’ will be ‘deal-sharing’ in the coming decade.
This post originally appeared on the Oxford SWF Project.