Sovereign wealth funds have moved from the periphery of institutional investing to become a major player in high-profile deals across the globe.
As the financial landscape unfolds into 2026, it is evident that there is a paradigm shift in the way global investment is done. Two of the biggest players in the world of investment – sovereign wealth funds (SWFs) and private equity (PE) – are not only vying for business but also for the very definition of the global markets. Whether it is the massive acquisition or the move for infrastructure, the implications of their respective investments on the way capital flows are profound. In a year where the size of transactions has increased and the markets are buoyed by the strength of technology, it is essential to understand who the leaders are in the world of global deal-making and how their investment strategies differ and converge.
Sovereign wealth funds have moved from the periphery of institutional investing to become a major player in high-profile deals across the globe. SWFs were traditionally viewed as passive allocators, often restricted to government bond portfolios or small equity stakes in Western markets, whereas current SWFs are active and aggressive players with investment horizons that go beyond the realm of diversification. SWFs, fuelled by record-high assets and a desire to make strategic investments, have been major drivers of global M&A activity. According to data from the Global SWF Report, Middle Eastern SWFs invested around US$127 billion in 2025, which marked a nearly 48 per cent increase over the previous year, with capital targeted at everything from digital platforms and AI infrastructure to advanced industrial technologies. These figures point to a larger truth: SWFs are no longer merely relegated to sovereign bond markets and passive investment but are instead making capital allocations in areas that are deemed essential to future economic preeminence.
However, this has also impacted the manner and method of deal-making in the favour of those that have strategic and long-term national and regional significance. For example, Gulf SWFs have been at the forefront of mega-deals, such as multi-billion-dollar acquisitions, which would have been deemed impossible a decade ago. There has been a concerted effort in the area of technology, energy transition, and healthcare that has resulted in partnerships with private equity houses, direct investments, and even consortium bids for world-class brands. These investments are made not necessarily for financial returns but for strategic economic imperatives, such as diversification away from hydrocarbon resources, technology independence, and improving competitive advantage in new industries.
By contrast, private equity continues to be a major driver of global deal flow because of its unique ability to structure, finance, and execute complex deals. With more than US$2 trillion in so-called “dry powder” – committed capital from limited partners yet to be invested – the private equity industry began 2026 with a formidable toolkit. Megadeals have become the hallmark of the industry’s revival, with acquisitions and buyouts in the technology, healthcare, and industrial sectors reaching record-breaking totals. A report by McKinsey Global Private Equity points out that the value of buyout deal flow in 2025 reached US$2.6 trillion, with deals above US$500 million contributing disproportionately to the total.
The key to what makes private equity unique is its unrelenting drive to create value and maximise returns. Unlike SWFs, which may have more strategic and longer-term investment objectives, PE firms tend to work on a fund cycle that is specifically designed to facilitate an exit in a five- to eight-year window. The impact of PE firms on the global flow of deals is thus a result of their inherent strategic fit with the objective of profit maximisation, which involves identifying undervalued assets, using leverage effectively, and implementing value-creation initiatives that justify a higher valuation at the time of exit.
However, 2026 is a kind of turning point. The dominance of private equity is being disrupted by structural challenges such as high interest rates, slower exits, and rising competition for quality assets. According to a report by the Financial Times, private equity firms are finding it difficult to sell their assets at the same rate as before the pandemic, leading to a buildup of unsold investments that are held for longer periods, thus compressing overall returns. Such dynamics have compelled PE firms to readjust their strategies, at times increasing fund sizes to compete for megadeals or switching to secondaries and co-investment structures to handle liquidity more conservatively.
This paradigm shift has, in turn, made way for SWFs to make their presence felt. Unlike private equity, SWFs are not constrained by the typical lifecycle of their funds or the need to distribute cash to pensioners or LPs on a set timeline. Their patient capital, which is typically supplemented by the deep pockets of the sovereign, enables them to invest in majority stakes in infrastructure, energy transition, and technology platforms with a long-term horizon, unburdened by the need for immediate exits. This flexibility in terms of time horizons is a key differentiator for SWFs in industries where returns are measured over several decades, not years.
Interestingly, the SWF-private equity dynamic has also moved from competition to collaboration. The number of co-investments has risen dramatically, especially in deals that involve risk levels or capital intensity beyond the capacity of one party. In 2025, the number of joint investments in deals involving Middle Eastern SWFs and private equity firms approached US$39.36 billion, with larger transactions likely to break past annual records. Such co-investments demonstrate how SWFs and private equity can support each other’s strengths and weaknesses: SWFs offer size and substance, while private equity offers deal acumen and industry knowledge.
In terms of economic geography, the SWFs’ impact is especially evident in areas where private equity has traditionally been less present. In the European and African contexts, sovereign capital has played a crucial role in supporting infrastructure and energy transitions, which have traditionally been sectors that equity capital has been reluctant to enter because of the long payback periods. As a result of the injection of this state-supported capital, sectors and submarkets that would otherwise have stagnated have been rejuvenated, and the SWF’s soft power impact has been evident.
