Sovereign wealth funds (SWFs) are significantly increasing their allocation to private markets, moving away from traditional public market investments. A recent survey covering 50% of global SWF assets under management found that while approximately $10 trillion remains in public markets, private market investments have become more active, reaching around $5 trillion. Over the past 12 months, sovereign investors participated in $160-$170 billion in global private market transactions, with $120 billion attributed to direct investments. This trend of direct investments has averaged $120-$130 billion annually over the last five years, indicating a sustained strategic shift.
This evolving strategy reflects a desire for greater control over capital deployment and a reduction in fee leakage. Direct and co-investments now constitute 50%-60% of private investments, a substantial increase from approximately 40% in 2023. SWFs are also managing these exposures more in-house, reducing reliance on third-party managers. Private equity remains the largest private allocation at 50%, with infrastructure and real estate each accounting for 25%. However, SWFs are pacing PE investments more cautiously as exit markets normalize.
To facilitate this shift, SWFs have invested in building internal capabilities for due diligence, investment decision-making, and financing. This allows them to co-invest alongside general partners (GPs) or independently lead direct investments, transforming the relationship from fund manager-client to strategic partner. Asset classes such as secondaries, private credit, infrastructure, and real estate are gaining traction, providing greater yield stability, downside protection, and faster capital cycles, though private credit is being closely monitored for potential risks.
Notable recent deals highlight this trend, with SWFs engaging in significant acquisitions and funding rounds. For example, Saudi Arabia’s Public Investment Fund (PIF) is leading a consortium for a $55 billion take-private of Electronic Arts. Singapore’s GIC led a $30 billion funding round for AI firm Anthropic, and is involved in the Artificial Intelligence Infrastructure Partnership which acquired a controlling stake in Aligned Data Centers at an approximate $40 billion valuation. GIC is also reportedly looking to offload as much as $2 billion of private credit assets, tapping into the secondaries market to prune its maturing portfolio.
