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The advancements in technology have effected almost all parts of the global economy, including its products, services, delivery systems, and energy sources. Consequently, every investor, including sovereign wealth funds, is increasingly exposed to the technology sector.
Sovereign wealth funds access these companies and sectors by investing in startups alongside venture capital firms and other financial institutions. In recent years, many sovereign wealth funds have become more sophisticated investors in private markets. They have evolved from being limited partners in buyout funds to co-investing and leading funding rounds across the private equity spectrum from seed capital to pre-IPO. Indeed, research by IFSWF and PwC in 2021 showed that growth capital was the most popular unlisted sector for sovereign wealth funds.
86% of SWFs allocate to Growth Equity
76% of SWFs allocate to Buyouts
66% of SWFs allocate to Venture Capital
Source: IFSWF, PwC, Partnering for Success: Sovereign Wealth Fund Investments in Private Markets, 2021
Consequently, we have seen a considerable increase in sovereign wealth fund investments in young companies:2 Between 2015 and 2021, such investments increased from 19, valued at $0.5 billion, to 133, valued at $5.7 billion – almost a third of direct investments in the year.
Source: IFSWF Database, 2022.
Moreover, sovereign wealth funds are increasingly focusing on technology-adjacent and technology-reliant sectors like healthcare, consumer goods, and renewable energy, which they expect to experience strong long-term growth. For domestically focused sovereign development funds, these companies offer considerable skill and technology transfer into their local economy.
By investing in early-stage and growth companies in these sectors, sovereign wealth funds can actively support the development of innovative technologies and business models, capitalise on these sectors’ potential, and generate attractive returns. In 2022, for example, sovereign wealth funds’ direct investments in technology companies at early- and growth- stages were by far the highest: 46 out of 85 at those stages in all sectors.
Although in 2022, sovereign wealth funds’ direct investments in early-stage companies fell from the record highs of the previous year, their allocations to early-stage and seed-capital rounds increased year-on-year from 40 to 43. The 97 sovereign wealth fund investments in the full range of startups is the second highest number after the 133 they made in 2021 and approximately a third above the previous three-year trend.
Early-stage firms accounted for about half of the 102 sovereign wealth fund investments in technology companies. Despite the recent well-documented challenges for many tech giants, the remaining 50% were in mature companies in the listed and unlisted markets. These are larger and command higher ticket sizes. In 2022, the total amount invested in technology companies was $17 billion across 102 transactions.
Source: IFSWF Database, 2022.
Despite headwinds, including China’s increasing regulation of tech companies, innovative emerging-market firms remain attractive to sovereign wealth funds. Forty-one per cent of direct investments in consumer goods and services (including e-commerce) were in emerging markets as the spending power of these countries’ growing middle classes created solid fundamental business cases in these sectors. For example, the Qatar Investment Authority has participated in several rounds of capital raising of e-commerce companies tapping into the spending power of the emerging middle classes, including the $290 million in Series E financing for Singapore’s Carsome Group, the $121 million Series D capital raise for Turkish-Singaporean marketing platform Insider. Abu Dhabi’s Mubadala Investment Company also led an $800 million Series E financing – one of the rare pre-IPO rounds of capital in 2022 – for Turkish grocery-delivery startup Getir. Although it is an emerging-market company, it also has a firm footing in developed European markets.
Meanwhile, developed markets are still attractive for specific subsectors of technology and telecoms. For example, the Public Investment Fund (PIF) of Saudi Arabia, via its subsidiary Savvy Gaming Group, has been looking for opportunities beyond the traditional US market and into Europe and Japan. In January 2022, PIF's Savvy bought the e-sports division of Sweden’s Modern Times Group for an enterprise value of $1.05 billion. Six months later, it made another $1 billion into another Swedish gaming company: Embracer Group AB, making it the second-largest owner. In May 2022, PIF acquired a 5.01% stake in Nintendo, its third investment in a Japanese gaming company in the last two years.