Sovereign wealth funds (SWFs) have remained pivotal players in global M&A activity, adapting their strategies in response to shifting economic conditions and private equity (PE) involvement. Over the past four years, SWF-backed transactions have demonstrated considerable variability in deal volume, with notable fluctuations in the level of PE/VC participation. The data reveals a dramatic upswing in 2021, where total SWF-backed M&A soared past $90 billion, buoyed by substantial private equity co-investments. However, this surge proved unsustainable, as 2022 saw a sharp decline in total investment value, and 2023 continued this downward trajectory, reflecting a more selective and risk-conscious approach amid rising interest rates, global economic uncertainty, and shifting geopolitical dynamics.

The role of PE and venture capital (VC) in these deals is particularly telling. The high degree of PE involvement in 2021 ($74.36 billion) indicates a period of strong capital deployment and favorable deal-making conditions, possibly fueled by post-pandemic liquidity and a push for higher returns through strategic asset acquisitions. In contrast, 2022 and 2023 saw PE involvement shrink significantly, with SWFs increasingly favoring deals independent of private equity participation. This shift suggests that SWFs may be reassessing risk, prioritizing direct investments, and seeking greater control over their asset allocations. The evolving interplay between SWFs and private equity presents crucial considerations for investment bankers, fund managers, and deal advisors navigating the current M&A landscape.

Key takeaways from chart:

• Surging SWF M&A Activity in 2021:

  • Total SWF-backed deals peaked at $91.79 billion in 2021, with over 80% ($74.36B) involving private equity or venture capital participation.

  • This period aligned with record-breaking global deal volumes, fueled by accommodative monetary policies, abundant liquidity, and a strong risk appetite among institutional investors.

• 2022 Shift: More Cautious Investment Strategy

  • Total SWF-backed M&A dropped to $78.21 billion, reflecting heightened macroeconomic uncertainty.

  • Private equity’s role diminished sharply ($39.03B vs. $74.36B in 2021), suggesting a growing preference for direct sovereign investments or more conservative asset selection.

  • The rise in non-PE-backed deals ($39.18B) indicates that SWFs were increasingly comfortable making independent strategic acquisitions rather than relying on PE partnerships.

• 2023 Trends: Contraction in Deal Volume & PE Participation

  • SWF-backed M&A fell further to $29.05 billion, marking a 61% decline from 2021 levels.

  • PE-backed transactions accounted for just $18.94 billion, reflecting risk aversion and the impact of higher capital costs.

  • The relative increase in non-PE-backed investments ($10.11B) suggests SWFs may be shifting toward long-term, lower-volatility assets rather than high-leverage, growth-oriented deals.

• Implications for PE Firms & Investment Advisors:

  • SWFs are recalibrating their investment strategies, favoring direct control over assets rather than co-investment with private equity firms.

  • Higher interest rates and geopolitical uncertainties have made leveraged buyouts (LBOs) less attractive, impacting the feasibility of large-scale PE-backed acquisitions.

  • PE firms looking to partner with SWFs may need to offer differentiated value propositions, such as exclusive deal access, sector expertise, or co-management structures to remain competitive.

  • Expect continued selectivity in SWF capital allocation, with a focus on infrastructure, energy, and technology assets that align with long-term sovereign priorities.

AUM

The growth trajectory of assets under management (AUM) by sovereign wealth funds (SWFs) and public pension funds underscores their increasing influence in global capital markets. Over the past decade, these institutional investors have steadily expanded their asset bases, with SWFs growing from $6 trillion in 2014 to an estimated $18 trillion by 2030 and public pension funds from $15 trillion to a projected $32 trillion in the same period. This expansion reflects their evolving investment strategies, shifting portfolio allocations, and response to macroeconomic conditions. As capital market dynamics continue to evolve, these investors are playing an increasingly strategic role in global financial stability, alternative asset growth, and long-term capital deployment.

The acceleration in AUM is particularly noteworthy post-2020, as both SWFs and pension funds increased their allocations to diversified asset classes, including private equity, infrastructure, and alternative investments. This surge coincides with broader economic trends, such as the search for yield in a lower-interest-rate environment, rising inflationary concerns, and geopolitical realignments. While SWFs continue to pursue long-term wealth preservation and economic development mandates, public pension funds are under pressure to generate stable returns to meet growing retirement liabilities. The implications of this capital expansion are profound, influencing everything from deal structuring to asset allocation strategies for private equity firms, investment banks, and institutional asset managers.

Key takeaways from chart:

• Steady Growth in AUM Across Institutional Investors:

  • SWF-managed assets have grown 3x from $6T in 2014 to a projected $18T in 2030, reflecting an expanding role in global markets.

  • Public pension funds remain significantly larger, projected to reach $32T by 2030, up from $15T in 2014—a sign of increasing long-term capital commitments.

• Post-2020 Acceleration Reflects Stronger Deployment & Diversification Strategies:

  • Both SWFs and pension funds increased their AUM substantially from 2020 onward, aligning with increased capital allocations to alternative assets.

  • The sharp rise from $30T in 2020 to an expected $50T by 2030 signals continued growth in institutional capital dominance.

• Diverging Investment Mandates Between SWFs & Pension Funds:

  • SWFs focus on economic resilience, wealth preservation, and long-term strategic investments, often favoring direct investments and infrastructure projects.

  • Pension funds are yield-driven, seeking stable returns to cover future liabilities, leading to higher allocations in private equity, fixed income, and diversified portfolios.

• Implications for Private Equity, Asset Managers & Investment Banks:

  • Increasing institutional capital inflows could reshape liquidity availability and drive demand for alternative investments.

  • Greater direct investment by SWFs may reduce reliance on traditional private equity funds, increasing competition in high-value asset acquisitions.

  • The continued rise in pension fund AUM suggests ongoing capital flows into income-generating assets, including real estate, infrastructure, and credit strategies.

  • Capital raising strategies must adapt as institutional investors prioritize fee efficiency, ESG mandates, and inflation-hedged investment vehicles.

• Looking Ahead: Institutional Investors as Dominant Market Players

  • By 2030, institutional investors (SWFs & pension funds) will control over $50T, reinforcing their ability to influence capital markets, deal terms, and asset valuations.

  • As global economic uncertainty persists, these investors will continue to act as stabilizing forces in financial markets, providing liquidity and long-term investment capital.

AUM to private markets

Institutional investors, particularly sovereign wealth funds (SWFs) and public pension funds (PPFs), have significantly increased their allocations to private markets over the past decade. Since 2014, AUM in private assets by these entities has more than doubled, growing from $2.8 trillion in 2014 to $6.8 trillion in 2023. This expansion highlights a strategic shift towards alternative investments as these funds seek higher returns, portfolio diversification, and inflation-hedged assets amid an evolving macroeconomic landscape. Over this period, the share of total AUM allocated to private markets has climbed steadily, reflecting the growing importance of private equity, infrastructure, real estate, and credit strategies in institutional portfolios.

Notably, the annualized growth rate of 10% in private market allocations underscores the increasing sophistication of SWFs and pension funds in managing complex, long-duration investments. The post-2020 surge, where private market AUM rose from $5.5 trillion in 2020 to $6.8 trillion in 2023, suggests a continued appetite for illiquid assets despite economic volatility. This trend has profound implications for private equity firms, asset managers, and investment banks, as SWFs and pension funds are now key players in capital formation, deal structuring, and direct investments. Understanding their capital flows, investment mandates, and strategic priorities is essential for financial professionals navigating today’s competitive investment landscape.

Key takeaways from chart:

• Private Market AUM More Than Doubled Since 2014:

  • Institutional allocations to private markets grew from $2.8T in 2014 to $6.8T in 2023, demonstrating strong demand for alternative investments.

  • Private assets as a percentage of total AUM increased from 13.5% in 2014 to 19.3% in 2023, reflecting a sustained shift away from traditional asset classes.

• Accelerated Growth Post-2020, Despite Market Uncertainty:

  • Private market AUM surged from $5.5T in 2020 to $6.8T in 2023, indicating sustained capital deployment despite inflationary pressures and interest rate hikes.

  • The resilience of this trend suggests institutional investors view private assets as long-term value creators, even in volatile economic conditions.

• Diversification & Risk Management Drive Allocation Strategy:

  • SWFs and PPFs have expanded their exposure to private equity, infrastructure, and private credit, seeking uncorrelated returns and downside protection.

  • Infrastructure investments, in particular, have gained favor as low-volatility, yield-generating assets, aligning with sovereign and pension fund mandates.

• Implications for Private Equity & Investment Professionals:

  • With institutional investors now allocating nearly 20% of AUM to private markets, competition for high-quality deals has intensified.

  • SWFs and pension funds are increasingly pursuing direct and co-investments, challenging traditional private equity models.

  • Fundraising strategies must evolve to meet institutional preferences, emphasizing fee transparency, ESG integration, and long-duration investment horizons.

• Looking Ahead: AUM Growth Signals Continued Capital Inflows into Private Markets

  • The trajectory suggests private markets will continue absorbing a larger share of institutional capital, reinforcing their position as essential investment vehicles.

  • As pension fund liabilities grow and SWFs seek greater economic resilience, expect sustained allocations to infrastructure, real assets, and private credit.

  • The role of investment banks, asset managers, and advisors will be critical in structuring innovative solutions that align with sovereign and pension fund objectives.

SWFs concentration AUM

The concentration of sovereign wealth fund (SWF) assets among the top 10 largest funds has remained a defining characteristic of the institutional investment landscape. As of 2024, the top 10 SWFs control 73% of total sovereign wealth AUM, an increase from 70% in 2014. This growing concentration underscores the dominance of a select group of mega-funds in global capital markets, with their influence often surpassing that of other institutional investors, including public pension funds (PPFs). While the broader SWF universe continues to expand, the largest funds wield disproportionate influence, shaping investment trends, capital flows, and strategic asset allocations.

This level of consolidation has significant implications for capital deployment, deal-making, and risk management across asset classes. Unlike PPFs, which are more fragmented in their asset distribution, the top 10 SWFs benefit from economies of scale, deeper sovereign backing, and greater flexibility in executing large, direct investments. Their dominant market share allows them to set pricing trends in private equity, infrastructure, and alternative investments, reinforcing their status as some of the most influential institutional investors globally. Understanding how these mega-funds operate, allocate capital, and adjust to macroeconomic shifts is critical for private equity firms, asset managers, and investment bankers navigating today’s competitive investment environment.

Key takeaways from chart:

• Increasing Concentration of SWF Assets in Top 10 Mega-Funds:

  • The top 10 SWFs controlled 70% of total SWF AUM in 2014, a figure that has since risen to 73% in 2024.

  • Despite the creation of new sovereign funds globally, the largest players continue to outpace smaller SWFs in AUM growth and capital deployment.

• Dominance of Top SWFs Exceeds That of Public Pension Funds (PPFs):

  • Unlike PPFs, which have a broader and more fragmented distribution of assets, SWFs are more concentrated, with a small number of funds controlling the majority of sovereign capital.

  • This concentration gives leading SWFs an outsized role in global investment trends, asset price formation, and alternative asset demand.

• Strategic Implications for Private Markets & Asset Managers:

  • Mega-SWFs are increasingly bypassing traditional fund structures, opting instead for direct investments, co-investments, and joint ventures.

  • Private equity firms must offer value-added partnerships, specialized expertise, and access to proprietary deal flow to attract SWF capital.

  • Asset managers must adapt to a world where a small number of sovereign investors can dictate capital allocation trends, influencing everything from infrastructure valuations to ESG investment mandates.

• Outlook: Continued Growth & Institutional Influence

  • As the top 10 SWFs further consolidate their control over sovereign capital, their ability to influence financial markets will only grow.

  • Expect continued focus on long-duration assets, technology investments, and real assets as these funds navigate global economic shifts.

  • For investment professionals, understanding the strategic priorities of these mega-SWFs will be essential in securing partnerships and capital allocations in the years ahead.

Sources & References

S&P Global. Sovereign wealth fund backed M&A fell sharply. https://www.spglobal.com/market-intelligence/en/news-insights/articles/2024/2/sovereign-wealth-fund-backed-m-a-fell-sharply-in-2023-80300695#:~:text=Sovereign%20wealth%20funds%20partnered%20with,S%26P%20Global%20Market%20Intelligence%20data.

BCG. Sovereign Wealth Funds and Public Pension Funds Are Reshaping Private Markets. https://web-assets.bcg.com/ff/f1/546dac984f18a0718586db716d9d/gpi-report-dec-2024-edit.pdf

EQTGroup. The rise and rise of SWF . https://eqtgroup.com/thinq/wealth/the-rise-and-rise-of-sovereign-wealth-funds