Joseph A. McCahery

F. Alexander de Roode

Tilburg University and ECGI

Robeco Asset Management

Co-Investments of Sovereign Wealth Funds in Private Equity


Direct investments are the preferred vehicle for large institutional investors to have control over their portfolio investments. We study the deal structure of direct investments by sovereign wealth funds (SWFs) in private equity transactions. We find that SWFs shift from investing in private equity funds to originating and co-investing together with private equity funds in deals. The choice for co-investment affects deal size, risk-bearing, fees and returns. Overall, our results show the strong interest of SWFs in direct investments in developed markets.


Sovereign wealth funds (SWFs) represent a growing strategic and financial concern for regulators and market participants around the world. This coincides with the major changes in the pattern of investment and substantial growth of assets controlled by SWFs since the end of the financial crisis.


A significant amount of growth in assets can be attributed to the dramatic increase in the number of countries that have established SWFs to manage their reserves and assets. In terms of total assets under management, the amount has been estimated at $4 to $6 trillion1. The impact of the large stakes of SWF investments may affect valuations in particular sectors of markets, contributing to inaccurate pricing and volatility. Despite the slowdown of capital inflows, SWFs are expected to continue to grow their assets under management and also to allocate their wealth in different types of investments.

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