The rise of sovereign wealth funds in private markets
Key takeaways
- How are sovereign wealth funds reshaping private markets? Sovereign wealth funds (SWFs) have evolved into active, influential investors, shaping private markets through strategic deals, governance expectations, and sector direction.
- SWFs align long-term national objectives with private market investments, leveraging their scale and stable capital to execute major deals, such as digital infrastructure and AI-focused transactions.
- What is driving SWF growth in private equity? Increasing allocations reflect structural mandates, not short-term opportunism, reinforcing SWFs as anchors of long-term, strategic investment.
Sovereign wealth funds have evolved from passive allocators to structural architects of private markets with a defining role in their ongoing development.
Sovereign wealth funds (SWFs) have emerged as one of the most consequential forces shaping global private markets. Once viewed primarily as large but relatively passive pools of capital, sovereign investors are now central to how private markets function, affecting capital availability, governance expectations, deal structures, and even the strategic direction of entire sectors.
Alongside public pension funds, sovereign wealth funds now represent the dominant source of long-term capital flowing into private equity, private credit, infrastructure, and real estate. Collectively, sovereign wealth funds and public pension funds manage an estimated USD36 trillion in assets under management, with allocations to private markets increasing by an average of 10% per year. (See Figure 1.)
This shift reflects structural mandates and scale rather than short-term opportunism. Sovereign wealth funds are not reallocating to private markets in response to volatility or temporary market dislocation. Rather, their growing footprint reflects the alignment between private market structures and sovereign investors’ long-term horizons, return targets and national development objectives.
SWF investment: A structural shift
Recent years have seen sovereign investors participate in some of the largest private-market transactions globally, including consortium-based acquisitions and large-scale digital infrastructure financings. These transactions underscore the role of sovereign wealth funds not as marginal allocators, but as capital anchors, often providing the scale and stability required to execute complex deals.
Recent deal activity illustrates this shift. The AI Infrastructure Partnership (AIP) – a vehicle backed by Abu Dhabi-based MGX, the Kuwait Investment Authority and Singapore’s Temasek, alongside private sector investors – is investing heavily in digital infrastructure, acquiring a controlling stake in Aligned Data Centers at an approximate USD40 billion valuation. In another high-profile acquisition, Saudi Arabia’s Public Investment Fund (PIF) has joined a consortium pursuing the USD55 billion take-private of Electronic Arts. Sovereign investors are also active in earlier stage businesses: Singapore’s GIC led a USD30 billion funding round for AI firm Anthropic in February 2026.
“What we are seeing is not a cyclical reallocation, but a structural shift,” said Julie Kassab, Partner at Deloitte Middle East. “Sovereign wealth funds are deliberately aligning private market investments with long-term national priorities and long-term value creation rather than reacting to short-term market conditions.”
Victoria Barbary, Senior Advisor at the Milken Institute, echoed that assessment. “Sovereign wealth funds are no longer on the margins of private markets,” she said. “They are core actors influencing how capital is deployed, how deals are structured, and how long-term ownership is defined.”
Aligning with long-term mandates
One of the defining characteristics of sovereign wealth funds is their ability to invest over a long time horizon. Unlike pension funds or other asset owners, most sovereign wealth funds are not required to make regular payouts on a fixed schedule. That freedom allows them to invest through economic and market cycles.
“That ability to think across generations — rather than fund cycles — makes private markets particularly attractive for sovereign investors,” said Barbary.
(See Figure 2.) Allocations to private markets among sovereign wealth funds have increased steadily over the past decade. According to State Street Investment Management, average private‑market exposure rose from around 25% in 2020 to nearly 30% by the end of 2025. (See Figure 2.) This shift reflects both the maturation of private markets and their alignment with investors able to take a long‑term, multi‑decade view rather than focus on quarterly performance.
Sovereign wealth funds typically operate under a dual mandate: generating long-term financial returns while supporting national economic, strategic or developmental objectives. This dual mandate influences how risk, return, and time horizons are evaluated, and it helps explain why private market assets are often a natural fit for sovereign capital.
For instance, Saudi Arabia’s PIF is working to develop national champions in strategic sectors including automotive, tourism and steel. In the four years to 2025, PIF deployed approximately SAR750 billion (USD199 billion) in domestic projects, including major infrastructure projects, representing around 70% of its total investments.
“Sovereign wealth funds are patient investors by design,” said Javier Herrera, Partner at Kearney. “They can hold assets over much longer horizons than traditional private equity structures allow, which makes them well suited to support long term national economic objectives."
From passive partners to strategic investors
Over the past decade, many large sovereign wealth funds have established or expanded private markets teams to explore a wider range of investments. Abu Dhabi sovereign investor Mubadala is one example, having established dedicated offices in major financial hubs including New York and London under Mubadala Capital, its alternative asset management subsidiary.
While traditional fund commitments remain part of their private market activity, sovereign investors now participate through a broad set of structures, including co-investments with private equity sponsors, direct investments, and platform- or consortium-based transactions.
In some cases, they now invest alongside private equity sponsors; in others, they compete directly for assets — particularly in large-ticket transactions where scale is a defining factor.
For example, Mubadala and GIC teamed up with Partners Group and TPG Rise Climate to acquire Techem, a German energy services provider, in 2025 in a deal valued at approximately AED29 billion (USD7.9 billion). Nine of the 10 largest deals involving sovereign wealth funds in 2025 were co-investments with private equity firms, according to S&P Global Market Intelligence.
"As sovereign wealth funds build internal capabilities, they are increasingly investing directly and alongside private equity sponsors,” said Herrera. “This has allowed them to take a leading role in transactions, particularly in larger and more complex deals."
Kassab at Deloitte noted that sovereign investors have long been viewed as key competitors to private equity houses, particularly in large transactions. “That dynamic is becoming more pronounced as some sovereigns revisit their portfolio strategies and increase allocations to higher-returning assets,” she said.
The evolution is also reshaping the private equity industry. To meet growing demand from sovereign wealth funds, many private equity firms are increasingly building regional platforms, sector-specialized teams and sovereign-facing partnerships, Kassab added.
“SWFs are no longer just capital providers; they are strategic collaborators,” she said. “This is driving private equity firms to deepen local presence in the Middle East and Asia, align with national priorities, and offer co-creation opportunities rather than purely financial products.”
Redefining long-term capital
The expanding role of sovereign wealth funds in private markets reflects the growing economic importance of private investments around the world. With companies staying private for longer, much of the value creation is concentrated in private markets. Based on US IPO data, the average company that went public in 2000 was five years old and had sales of USD12 million; in 2025 that had shifted to an age of 12 years and sales of USD92.5 million. That gives long-term investors a powerful incentive to look beyond the public markets.
As sovereign investors deepen their presence in private markets, they are increasingly defining the norms, structures and expectations that will shape the future of this growing segment.
“Sovereign wealth funds are built to think across generations,” Kassab said. “When they engage in private markets, it’s not about short-term optimization — it’s about shaping systems, building resilience, and aligning capital with long-term national priorities.”
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