To institutional funds managers, sovereign wealth funds are huge pools of assets that are domiciled across the globe and have few things in common, making business development a big challenge. SIMON MUMME reports.
Sovereign wealth funds (SWFs) are only similar in two ways: “they are sovereign, and they are large sums of money,” says the regional head of a global funds manager, who like many potential service providers to SWFs, requests anonymity. An attempt to build common products for, say, the SWFs of Norway, Australia, Saudi Arabia and China would be a naïve endeavour, and to regard them as similar entities would be myopic, as their investment styles and strategies, governance structures and transparency levels vary.
“They have different motivations and masters,” the CEO says. Service providers to these funds find that an axiom of customer service – know your client – bears new meaning when dealing with these large patrons.
Although some newer, smaller SWFs can be passive, product-taking clients, the scale and internal resources of the more advanced funds enables them to seek partnerships with manufacturers and service providers and not settle for ready-to-go options. “The whole industry is bifurcating between those who seek products and those who seek services,” an industry executive says – some are “participants” while others are “product-buyers”. On its website, the $875 billion Abu Dhabi Investment Authority (ADIA), rumoured to be the world’s largest SWF, describes itself as a “trusted and responsible investment partner”.
State Street and JPMorgan are two global firms that have established separate divisions to engage SWFs and other sovereign reservoirs of money, while other global managers, such as Vanguard Investments and Principal Global Investors, see them as big institutional funds.
In 2000, State Street set up the Official Institutions Group, an eight-person team headquartered in London that only deals with ‘official’ funds: central banks, sovereign pension funds and SWFs. These clients account for about $250 billion of the firm’s $2 trillion under management. Hon Cheung, who runs the group’s office in the Asia-Pacific region, says the group is “a multi-disciplined team of people” which approaches sovereign funds primarily from the perspective of a senior relationship manager. However not all asset managers regard these specialised groups as necessary: an executive from a rival firm calls them “gimmicky”.
But entities such as State Street’s Official Institutions Group may help firms develop the partnerships that big SWFs are looking for. While that group’s clients can access the array of investment products and services proffered by State Street, they also learn something of their competitors’ strategies from the group, and receive training in the many facets of investment management, such as portfolio management, risk analysis, custody and administration, Cheung says. “They like to understand what their peers are doing and cross-check this with the private sector.” These clients prefer long-term relationships over singular deals. “These are large pools of assets, so you don’t want to be short-term.”