Monopsonistic Pricing

Ashby Monk

Joseph Chaney and George Chen of Reuters have an interesting article on the CIC’s stingy habits; the authors call the fund a “cheapskate” for capping their M&A fees at $3 million (no matter the size of the deal).

“So while CIC has shown a willingness to dish out cash for investments, it has tended to keep a tight fist on the fees granted to banks that advise them.”

I’m not surprised by this. The CIC is perhaps the world’s largest ‘strategic’ investor in a market that has seen M&A activity collapse. As with any monopsony — one buyer, many sellers — the sellers (in this case the M&A service providers) are going to take a major pricing hit.

Yet again, we see another example of how  SWFs, such as the CIC, have seen their relative, competitive position improve as a result of this financial crisis.

5 Responses to “Monopsonistic Pricing”

  1. 1 Rachel December 9, 2009 at 11:19 pm

    great point. this is actually something that a number of institutional investors are trying – including public pension funds.

  2. 2 rien huizer December 10, 2009 at 3:11 am

    For once, ik like what CIC is doing here. They used to say, if you pay peanuts, you get monkeys, but today a p[eanut may be a decent wage for an investment banker. And of course investment banks willing to invest in long term relationships with a relatively inexperienced client would even assign non-monkeys to this account.

  3. 3 MMcC December 15, 2009 at 4:54 am

    IBs aren’t the only ones being squeezed. Anyone fancy 32 basis points for running an actively-managed Asia ex-J equity mandate? How about 40 bps for EM? CIC spent most of 2009 as the only fat wallet around and everyone who does business with them understands they’re managing seed money. As the old saying goes: “We lose money on every sale but we make it up in volume.”

  1. 1 | Money Supply | Economic news headlines Trackback on December 10, 2009 at 1:18 pm
  2. 2 An Update On China’s SWFs « Oxford SWF Project Trackback on February 22, 2010 at 2:48 pm

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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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