Sovereign Wealth Funds: An Evolving Role in M&A

Sovereign wealth funds (SWFs) have become increasingly prominent players in large M&A transactions, driven by their ability to deploy significant capital and their interest in a broad range of sectors and business models.

Yet not every transaction is a good fit for the SWF model, which continues to evolve. Over the past several years, SWFs have transitioned from playing limited partner (LP) roles into being co-investors, and, most recently, have further evolved into making direct investments with outright ownership in businesses, similar to a general partner (GP). And while SWFs bring unique advantages to company sellers, their involvement in a transaction requires careful process management and early engagement to align with their typically rigorous investment criteria.

Here, Daniel Wang, John Neuner, and Patrick McNulty discuss the ongoing evolution of SWFs in Harris Williams transactions and key considerations for company sellers.

How has sovereign wealth fund participation in Harris Williams engagements evolved in recent years?

Wang: It has increased significantly. Over the past five years, SWFs have expanded their presence in the M&A market, particularly by building on-the-ground teams in key regions like the U.S. Examples include GIC, Temasek, Mubadala, and QIA. There are also SWFs with dedicated North America and European investment teams in their home-country headquarters. For example, ADIA has dedicated teams in Abu Dhabi. As Harris Williams’ share of multibillion-dollar sell-side transactions increases, so has SWF participation in those engagements.

Neuner: One of the major themes in M&A and private capital is companies remaining “private for longer.” This creates an opportunity for co-investment partners to invest in high-quality businesses as a significant minority partner. That trend, paired with the shifts in the SWF model, has enabled SWFs to play a much broader role in the market, particularly in larger transactions, including many involving Harris Williams clients. It’s exciting to see this progression, and we’re actively building deeper and broader relationships with key SWFs in Asia-Pacific and among member states of the Gulf Cooperation Council.

Are there specific types of businesses and transactions more likely to attract sovereign wealth fund attention?

Wang: SWFs are typically looking for minority investment opportunities with ownership stakes up to 49%, and often not less than 25%. Depending on the SWF, minimum equity check size typically starts at around $300 million. Many prefer to deploy larger checks between $500 million and $1 billion, and they are often willing to invest even more for “must-have” assets. That positions them well for transactions involving companies with enterprise values of $1.5 billion or higher, in which the SWF can invest alongside private equity buyers.

SWFs are generally open to a variety of sectors, but they tend to avoid CIFIUS-prone industries like defense or government-related businesses as well as areas with higher reputational risks. Like most M&A investors, SWFs prioritize growth-oriented and noncyclical sectors and business models.

There are also SWFs that target businesses aligned with their home-market strategies or existing portfolios. Some seek investments in sectors which they hope will grow in their home markets, while others invest in “marquee” transactions in high-visibility areas. An example is the Public Investment Fund (PIF) of Saudi Arabia investing in LIV Golf. This investment aligns with PIF’s strategy of acquiring assets that elevate Saudi Arabia’s global standing, particularly in sectors like tourism, hospitality, and entertainment. The investment in LIV Golf is part of PIF’s broader initiative to enhance Saudi Arabia’s global visibility and diversify its economy beyond oil dependency.

Does working with a sovereign wealth fund change the deal process in any way?

Wang: Even though they are generally minority investors, SWFs tend to require the same level of diligence and engagement as lead buyers due to the large capital commitments involved. As such, they must be approached early to allow sufficient time for underwriting and internal approvals.

In terms of bid structure, SWFs often submit non-binding bids independently, underwriting valuations themselves. However, they frequently seek partnerships with other investors in subsequent rounds, either through their own networks or via facilitated matchmaking. As such, while involving an SWF does not change the deal timeline, it could require more coordination to ensure alignment with lead buyers and other stakeholders.

McNulty: At the same time, our experience has been that many PE groups see the benefits of partnering with SWFs on larger transactions. These burgeoning partnerships can allow sponsors to pursue assets that historically have been out of reach and can serve as another source of capital aligned with the PE group’s current investment goals and overall portfolio management. SWFs can bring substantial capital to a transaction, potentially making it easier to prevail on must-have assets at the $1 billion-plus level. They can also be an ideal partner for a large founder-owned business looking for a minority investor.

How do you see sovereign wealth funds evolving as a buyer class over the next few years?

Wang: It’s likely their role in transactions will shift—especially for larger and more sophisticated funds. While SWFs currently focus on minority stakes, some are considering evolving into majority buyers as they deepen their market presence and operational capabilities.

Similarly, as SWFs take on larger stakes (e.g., 25–40%), we expect them to become more active in strategic decision-making, including board representation and influencing exits. At the same time, SWFs with more limited operational capabilities will likely remain focused on minority investments, maintaining their important role as supplemental capital providers in larger transactions. Overall, we see SWFs continuing to become increasingly important for a growing range of transactions.

To learn more about sovereign wealth funds, please contact us.