The Innovation Alliance

Collaboration and co-investment among peer investment organizations has consumed a lot of my thinking over the past two and half years. Here’s why…

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In a recent paper with Jagdeep Baccher, we talked about a growing trend among pensions and sovereign funds to invest side-by-side with peers. Our idea was (and is) to pool risk, capital, resources and opportunities in a bid to disinter-mediate (or at least re-intermediate) certain segments of the financial services industry. This is a topic that has consumed a lot of my thinking over the past two and half years, as I think working with peers offers a truly unique opportunity to access investment opportunities in a more aligned manner.

And, as it turns out, the recently published annual report of the New Zealand Superannuation Fund has a lovely little blurb that describes its own rationale for collaborating with peers, as well as highlighting some recent peer-related activities that the fund has been working on. It’s worth reading:

“For a small, geographically isolated fund like ours, collaboration with peers across the world offers a range of strategic benefits. Building relationships with leading global peers has, therefore, been a key strategy for the Guardians since it started investing, and continues to be important. The benefits of collaboration include: leveraging these relationships to secure global and local opportunities for co-investment; exchange of best practice and knowledge; and cooperation in areas of joint interest, such as responsible investment.

The 2012/13 year was notable for our success in partnering with the Public Sector Pension Investment Board (PSP) and for the formation of the Innovation Alliance with the Alberta Investment Management Corporation and Abu Dhabi Investment Authority. During the year we completed an update of our peer collaboration strategy, identifying the peer funds with which we have the greatest similarities, and assigning relationship managers to each. We also successfully implemented a new relationship management tool.

Our current focus is on building relationships with peer funds identified as being most likely co-investment partners. We aim to agree areas of common interest, so that co-investment search is focused, and demonstrate that we have the capability to assess opportunities. Co-investments require an alignment of strong relationships and equally valued opportunities.”

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And what’s the deal with that “Innovation Alliance” thingamajig mentioned above? Here’s a detailed description from the Report:

“In late 2012 the Guardians signed a Memorandum of Understanding with the Alberta Investment Management Corporation (AIMCo) and the Abu Dhabi Investment Authority (ADIA) to invest in growth capital opportunities globally.

The main benefit of the Alliance to the Fund is the introductions it will facilitate to suitable investment opportunities, via our partners’ existing relationships and due diligence capabilities. In particular, the intention is to find opportunities where our long investment horizon can be valuable to allow companies to grow before going to the public markets to raise capital. The three investors are working with Kleiner Perkins to identify these opportunities.

As investors, AIMCo and ADIA have similar characteristics to the Fund (both enjoy long investment horizons and certain liquidity) making them suitable co-investment partners. AIMCo is one of Canada’s largest and most diversified institutional investment fund managers, with an investment portfolio of approximately CAD70 billion. ADIA is a globally diversified investment institution that is wholly owned by the Government of the Emirate of Abu Dhabi.

Each potential investment is subject to specific analysis and extensive due diligence; i.e. each decision is made independently by us on a case-by-case basis.”

You’ve got to admit, it’s pretty exciting to see some real, sustained collaboration and co-investment taking place among large sovereign funds in a specific domain.

Monster kudos to whoever helped put that together...

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