Joint Funds

Ashby Monk

Opalesque flagged up an interesting article this morning in Emirates Business 24/7 on ‘joint funds’. In short, joint funds are cooperative investment funds that attract two or more SWFs into a new investment fund with a specific focus. The China Dubai Capital joint fund is listed as the primary example.

Whereas I rubbished the idea of mutual wealth funds that recently came to the fore, joint funds could offer considerable benefits. Unlike MWFs, which were presented as a way to facilitate SWF legitimacy and alleviate Western concerns about SWFs, joint funds are presented as institutionalized knowledge transfer. This transfer typically comes in the form of local information about investing in a specific region or industry. Since, past academic research by Coval and Moskowitz has shown that investing locally (within 100 kilometers of the fund’s headquarters) can bump investment returns by over 1% due to information asymmetries, there are clear benefits to having local partners.

In short, joint funds would bring together two or three funds with diverse backgrounds into a single cooperative, entity so as to maximize the effectiveness of the investment function in a specific economic geography (region, industry, asset class, etc.). I expect we’ll see more of these types of funds, since improving the investment function will also facilitate the acceptance of SWFs internationally. The partnership between Mubadala and France’s Strategic Investment Fund is perhaps illustrative of this fact.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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