Like the more sophisticated superannuation funds, many SWFs are engaging asset managers and investment banks for particular investments as partners, rather than clients. “Merrill Lynch is trying to go down this route, Look at who they’ve just hired as a consultant,” the regional CEO says. Referring to the investment bank’s appointment of Steve Gibbs, formerly the chief executive officer of the $18 billion Australian Reward Investment Alliance, as a consultant to liaise with super funds in the investment bank’s quest to distribute synthetic and alternative products.
Likewise when SWFs (and big super funds, too) move to buy a stake in a company, it’s likely that they will call on investment banks, rather than funds managers, to assist with these types of transactions. The funds are also attracting hedge fund, private equity and other alternatives managers since the provision of liquidity is not a major objective. This has prompted comparisons with the endowment funds run by prestigious US universities, such as Yale and Harvard, which secured capacity with alternatives managers long before pension funds began looking at this side of the market.
Cheung acknowledges that SWFs can behave like the endowments, but says “the truth is that SWFs, like any large pool of assets, have a large component [of their funds] in core-index products, to get low-cost, efficient market exposure”.
To partner with these clients, some of which have the capacity to invest across the world, service providers need reliable global reach. “You might have the Norwegian SWF, and the servicing is contracted in the regional office, but the service is provided globally,” the regional CEO says.
Investment consultants, meanwhile, are being asked to focus on particular asset classes in SWF portfolios. Australia’s Future Fund, which employs Watson Wyatt as a more or less comprehensive asset consultant, is one exception. SWFs are a diverse group, and their demands stem from the sophistication of their investment strategies. New SWFs in developing economies, such as the $US2.9 billion Petroleum Fund of Timor-Leste, are not usually run by veterans of Wall Street or London. The Petroleum Fund, which recently appointed the Sydney office of JPMorgan Worldwide Security Services as its global custodian, is sourcing skills training from the firm.
David Brown, a relationship manager with JPMorgan who helped drive the Timor deal, says the appointment of a global custodian was the “first step in extending their investment strategy – they can appoint external managers from now”.