An alliance based on collaboration among asset owners could create attractive co-investing opportunities, even bypassing intermediaries, according to academics.
Stanford University’s Ashby Monk, Rajiv Sharma, and Wen Feng argued for a robust network of asset owners based on trust to overcome information asymmetries frequently found in private market investments.
“An investor’s network can help overcome the reliance that has historically been placed on financial intermediaries for deploying capital.”Strong collaboration also allows for pooled skill sets, pipeline deals, and “better alignment of interest than available with outsourced options,” the authors wrote.
“An investor’s network can help overcome the reliance that has historically been placed on financial intermediaries for deploying capital,” they continued.
According to the paper, developing a healthy social network requires first cooperation, then collaboration, and eventually opportunities for co-investments.
The simplest way to build an investor’s network is through research clubs and international roundtables, such as the International Forum of Sovereign Wealth Funds, Monk, Sharma, and Feng said.
These forums allow for investors to actively participate and learn from their counterparts, with goals of deepening the relationships to pursue joint ventures or co-investments.
In order to fully devote to creating a strong network, the authors recommended institutions hire a chief networking officer (CNO): a sole individual responsible for attending roundtables and fostering trust with other investors.
“Having an individual dedicated solely to exploring and developing the weak ties of an organization could reap significant rewards for an investor in the form of new ideas, knowledge, and opportunities,” the paper said.
The CNO would require a “breadth and depth” of the organization’s activities to identify potentially beneficial opportunities and connections. He or she would also need to be a clear communicator with “deep empathy to overcome any social or cultural barriers,” the authors said.
Read the full paper, “Social Capital and Building an Institutional Investor’s Collaborative Network”.
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