Sovereign wealth funds: What every CIO should know

What are sovereign wealth funds?

Sovereign wealth funds are government-owned investment vehicles -- either a central government or a subnational government -- and includes investments in foreign financial assets, according to the 2008 Santiago Principles, which was drafted by sovereign wealth fund officials. Governments establish these funds to achieve specific financial objectives.

"Think of a giant mutual fund or private equity fund that instead of being owned by individual investors is owned by a government," said Michael Herde, senior managing director at FTI Consulting.

SWFs do not include public pension funds ultimately owned by the underlying policyholders. Nor do they include central bank reserve assets, which are not invested.

There are more than 100 SWFs worldwide, and they manage more than $10 trillion, according to the nonprofit International Forum of Sovereign Wealth Funds.

The Norway Government Pension Fund Global had more than $2 trillion in assets, making it the largest SWF in the world, according to fall 2025 data from the Sovereign Fund Wealth Institute. The China Investment Corp., Abu Dhabi Investment Authority, China's SAFE Investment Co. and Kuwait Investment Authority -- each with more than $1 trillion in assets -- rounded out the top five largest SWFs.

The 10 largest funds make up nearly 80% of the SWF assets under management, according to IFSWF data.

How do sovereign wealth funds work?

SWF operate similarly to mutual funds or private equity funds. However, there are several key differences between sovereign wealth funds and other investment vehicles.

One big difference is SWFs are owned by a government rather than individual investors or investment firms. Another difference is how SWFs raise money, target investments and manage investments, said Zeeshan Ahmedani, a partner at the law firm A&O Shearman.

At their core, SWFs are pools of sovereign assets, with capital typically coming from the sale of natural resources -- such as oil and gas -- or revenue from exported manufactured goods and commodities, Ahmedani said. IFSWF has found that 45% of all SWFs are funded by revenue from natural resources.

The larger, more sophisticated sovereign wealth funds operate like investment banks and have experts working in verticals of investment interest -- for example, investments in technology or specifically AI, Ahmedani said. And as is the case with other investment vehicles, these sovereign wealth funds are mandated to manage assets to generate long-term value.

But governments also often use SWFs as tools to reach other objectives, Ahmedani said. Governments use these funds for the following reasons:

• To guard against shocks in the global economy.
• To support domestic economic agendas.
• To advance diplomatic goals.

Many governments use their sovereign wealth funds to achieve more than one such objective.

IFSWF found that 36.3% of SWFs have a savings mandate, 31.1% have a development/strategic mandate and 32.6% have both.

"Some act like pension funds, managing the money for future generations. Others have not just a return perspective but an economic development perspective," said Alexander De Mol, a partner at Bain & Co. and leader of the firm's global private equity practice.

De Mol said SWFs in that latter category include those from hydrocarbon nations that want to diversify their economies. It also includes those who use SWF investments to grow nascent industries in their countries by requiring their portfolio companies to develop the sector -- along with knowledge and talent -- within its own boundaries.

According to experts, some SWFs invest in companies directly, while many invest indirectly by working with venture capital and hedge funds to gain access to various asset classes.

Effects on business and IT strategy

Given the substantial amount of money that sovereign wealth funds have to invest, their objectives, roles in investments and long-term perspective, these funds can significantly reshape the strategies of the companies in which they invest, as well as the industries in which they make investments.

To start, money from an SWF investment -- coupled with the long-term investment view -- can help fund long-term strategic initiatives and long-term capital projects, De Mol said. A company with an SWF as a shareholder can also expect an active partner.

And if a government uses its fund to shape its country's economic future or as a diplomatic tool, it will likely play an even bigger role in shaping the strategies of those companies in which it invests, Del Mol said. The government may, for example, want companies to establish offices in their own countries as part of a plan to grow an industry or generate jobs.

De Mol said sovereign wealth funds, which are typically part of the largest investment deals being made today -- particularly in the tech sector -- also influence industries by bringing significant dollars needed to fund innovation as well as the long-term horizon required to incubate it.

In fact, SWFs often target technology, infrastructure and energy for their investments, and their involvement can accelerate R&D as well as advancements in emerging technologies such as AI and transformative applications of those technologies.

Moreover, if a government is using its sovereign wealth fund to grow a sector -- whether overseas or within its own borders -- that objective will affect how and where that sector advances, De Mol said. That can force companies throughout the sector to adjust their strategies in response.

Potential benefits for businesses

As is the case with any investment, sovereign wealth funds offer businesses access to capital.

But SWFs deliver more than that, De Mol said. More specifically, these funds typically provide substantial long-term capital, enabling strategic growth and innovation. As part of that, SWFs also often bring financial stability -- something that allows companies to pursue big projects without short-term pressure.

Additionally, the investments and shareholder involvement that typically come with SWFs enables expansion, access to new markets, infrastructure development and digital transformation, experts noted. SWF capital and shareholder involvement can also bring more visibility to a company as well as foster international partnerships and collaborations. SWFs can also act as strategic partners, driving sustainable business development and resilience in competitive global markets.

Risks and strategic considerations

Having a sovereign wealth fund as a shareholder also presents risks and strategic considerations for companies and their executives to consider.

One of the most significant risks and considerations is whether the Committee on Foreign Investment in the United States -- a U.S. government body that reviews certain foreign investments in the U.S. economy for potential national security risks -- blocks the SWF investment or imposes mitigation measures, Nevin said.

Another risk to consider is whether companies with SWFs from certain countries as shareholders may be excluded from certain business deals due to security concerns, regulatory restrictions or policies held by potential business partners, Nevin said. For example, a company could be barred from Department of Defense contracts due to national security concerns if it has SWF investments from China.

Companies with SWFs as shareholders may also face more reporting requirements and regulatory oversight, Nevin said.

Additionally, those companies will have to align to the objectives of the SWF, Ahmedani said.

"There are long-term implications strategically, operationally and almost existentially," Ahmedani said. "You're talking about private companies taking money from a government, and the company is involving a foreign government in the business. That will impact governance, information-sharing and strategy."

Action items for CIOs to take

CIOs may not be the ones making deals with the funds looking to invest in their companies, but they should keep abreast of how investments are shaping their industry and whether investors could be looking to invest in their own companies.

As part of that, CIOs should know whether any foreign governments are or could become investors in their industry or their own companies, De Mol said, noting the objective of the sovereign wealth funds could affect the company's strategy or the industry's trajectory.

Nevin said she advises CIOs at companies that have foreign governments as a shareholder to work with their company's general counsel and chief compliance officer to understand the regulations and reporting requirements related to and impacted by the investment. Those CIOs should also be aware of where data is flowing to ensure they're complying with all relevant data laws, as well as shareholders' requirements -- a task that can be more complex if data is flowing to foreign countries as part of an SWF investment agreement.

CIOs should also identify any opportunities that emerge due to the SWF investment, Nevin said. For example, the influx of capital from a long-term investor, such as a foreign government, could fund bigger projects or transformational programs that have longer timelines for showing returns.

Even CIOs whose companies don't have SWF investments should be watching such investment activity, Herde said, as SWF investment activities could affect the IT supply chain. CIOs may find that a partner firm or key technology supplier has SWF investments from countries that raise concerns -- a fact that could hinder the CIO's company's own business plans.

"If you're a defense contractor, for example, you're going to set yourself up for potential heartache if one of your key partners is owned by the Chinese government," Herde said.

Mary K. Pratt is an award-winning freelance journalist with a focus on covering enterprise IT and cybersecurity management.