Sovereign Wealth Fund

A sovereign wealth fund is a state-owned investment fund that invests a country's wealth. It often invests long term in companies, real estate, and securities around the world. Such funds are among the largest capital providers overall. They are typically funded from revenue that is not permanently available or that is deliberately separated from ongoing state spending, such as commodity exports, trade surpluses or currency reserves.

Their stated objectives range from providing for future generations to stabilising the state budget and diversifying the economy. They matter in transaction practice in two roles. First, they are large investors in private equity funds and therefore an important part of the industry's capital base. Second, they also act as direct buyers or co-investors, with a considerably longer horizon than a fund with a limited life, which can give them a valuation advantage for suitable targets.

The regulatory dimension deserves attention: investments by state-controlled investors in companies with critical infrastructure or security-relevant technology are subject to foreign investment review in Germany and the European Union, which materially affects a transaction's timetable and completion risk. Well-known examples include sovereign wealth funds from Norway, the United Arab Emirates, Saudi Arabia, Singapore and China. Alongside foreign investment screening, political considerations can complicate individual transactions irrespective of the economic logic.