Sovereign wealth funds ramp up direct private investments

A new survey on global sovereign wealth funds (SWF) found assets under management allocated to private markets is becoming more active, with funds increasingly manage these exposures in-house than through third-party managers.

The survey by Bain and Company covered 50% of addressable SWFs assets under management globally.

While the majority of SWFs are still invested in public markets with approximately US$10 trillion, private markets is becoming more active at US$5 trillion. The survey found direct and co-investments account for 50%-60% of private investments, up from approximately 40% in 2023.

In the past 12 months, sovereign investors participated in approximately US$160-US$170 billion in global private market transactions, of which US$120 billion was through direct investments, the survey found. According to Global SWF, direct investment totals have averaged US$120-US$130 billion over the past five years.

"SWFs have been transitioning from indirect to direct investing over the past 10-15 years, lessening their reliance on general partners (GPs) as they develop their own portfolio management and value-creation capabilities," the report read.

The report noted at the start of the transition, SWFs leveraged limited partnerships to invest in funds managed by others. Over time, private equity (PE) firms began offering co-investment rights on larger deals-shifting the relationship from "fund manager and client" to "equal strategic partner."

To play this more active role, SWFs had to build internal capabilities in due diligence, investment decision-making and financing, the survey found.

"Today, many funds possess the deployment scale, talent, and governance structure needed to coinvest alongside GPs or lead direct investments independently. Direct access gives SWFs tighter control over capital deployment, reduces fee leakage, and allows funds to retain a larger share of the value they help create," the report read.

PE is the largest private allocation at 50%, followed by infrastructure and real estate. The report found while interest in PE remains strong, SWFs are pacing investments more cautiously as exits renormalise and the market shifts from recovery into reacceleration.

"Secondaries, private credit, infrastructure, and real estate are gaining traction as strategic complements to PE, offering greater yield stability, downside protection, and quicker capital cycles," the report read.

"Private credit is being closely monitored to manage potential risks."