Sovereign wealth fund investment in venture capital, private equity, and real asset funds

Abstract

This paper examines the performance of limited partners’ (LPs) investments in venture capital, private equity, and real asset funds (referred to as “alternative asset funds”) from 52 countries around the world over the period of 1995 to 2020. The data indicate that sovereign wealth funds (SWFs) are significantly slower to fully liquidate and earn lower returns from their investments, particularly from their investments in venture capital funds. The longer duration and lower performance of SWFs is more pronounced for strategic SWFs than savings SWFs. We show that SWFs tend to invest in venture capital funds located in countries with lower-quality disclosure indices. Additionally, SWFs are more often involved in buyout funds and in larger funds that have greater number of limited partners. Overall, the data indicate sovereign wealth funds make large investments in alternative asset funds with a longer-term view and earn lower financial returns, which is consistent with strategic and political SWF investment objectives.