The thunderous entrance of sovereign wealth funds into the VC world
The thunderous entrance of sovereign wealth funds into the VC world
Benefitting from a virtually unlimited influx of capital, sovereign wealth funds have quietly been ramping up their investments in startups worldwide.
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A powerful force
Sovereign wealth funds, SWFs for short, are government-owned investment funds generally set up using a country’s natural resource wealth, fiscal surplus, proceeds of privatizations, or foreign currency reserves. The stated goal of these SWFs can be multiple, but generally fall within three broad categories, clearly layed out by Orinola Gbadebo Smith :
Stabilization priority: To insulate a given economy from internal and/or external shocks (investing in a variety of future-looking sectors such as AI, renewables)
A capital maximization priority: To transmute a given country's natural resource wealth into longer-duration financial instruments for future generations (Norway investing its oil wealth in capital markets)
Strategic development priority: To propagate development priorities such as job creation, infrastructure development, or economic diversification away from a single commodity (Gulf countries diversifying their income streams away from oil)
The SWF sector is highly concentrated, with 20 SWFs controlling 90% of the field’s assets under management (AUM). The masses of money handled by these SWFs are colossal, often counted in the hundreds of billions, even trillions in the case of the largest of them all, the Norwegian Government Pension Fund. They operate in somewhat of a grey, murky area, halfway between a potentially market-altering financial force and a half-veiled geopolitical tool.