Crucially, SWFs are not just passively patient; they are actively increasing their exposure to long-horizon investments. SWFs in emerging markets have more than doubled their assets under management in the past decade, with nearly half of new capital deployed into private markets – an arena once dominated by pension plans.

Figure 1: The Quiet Shift: SWFs Reweight Toward Illiquid, Long-Horizon Assets

As shown in Figure 1, sovereign wealth funds have dramatically increased their exposure to private markets over the past 15 years. In 2009, private assets represented only about three percent of the average SWF portfolio. By 2024, that share had jumped to roughly one-third of assets. Some of the largest SWFs now allocate more than 50 percent of their portfolios to illiquid assets such as private equity and infrastructure – a level of long-horizon commitment unmatched by pension funds or insurers.

Across infrastructure, energy, technology, and logistics, SWFs are backing projects whose value may take years or decades to unlock. As other institutional investors lose their capacity to hold long-horizon assets, SWFs are moving to fill the void in long-term capital.

The decline of pension-based long-term capital

For decades, defined benefit (DB) pensions served as the financial system’s primary source of long-term capital. With predictable outflows and large asset pools, they could allocate meaningfully to illiquid assets in pursuit of stable, long-run returns. Some even rivaled SWFs in size and risk appetite.

That model, however, is now in decline. Across developed markets, from the U.S. and U.K. to Australia, Canada, and the Netherlands, corporate and public DB pensions have been steadily replaced by defined contribution (DC) plans. With the exception of the Australian superannuation system, most DC plans are individual accounts, such as 401(k)s, shifting investment decisions from institutional investors to households. Unsurprisingly, households tend to favor liquidity, simplicity, and low fees.

Until very recently, most DC plans excluded private market investments entirely, and it’s only in the past year that the US began formally considering private equity in 401(k) plans. While markets like Australia have developed more robust private market participation, the structural tilt of most DC plans remains toward public markets and daily-priced funds.

Meanwhile, many remaining DB plans have shifted toward more liquid assets to manage near-term liabilities. Combined, these forces have led to a clear pullback from long-horizon investing by traditional pensions.

This raises a critical question: as pensions step back, who will fund long-term opportunities going forward?

Sovereign Wealth Funds Are Stepping In

So far, sovereign wealth funds have stepped into this gap. Leading funds in the Middle East and Asia-Pacific, in particular, are backing long-term development projects with confidence. Across energy transition, logistics infrastructure, and innovation hubs, these funds are backing initiatives that take years to unfold. When short-term investors retreat, SWFs increasingly act as anchor investors, providing stability and capital continuity.

Their role isn’t just financial. Many sovereign wealth funds deliberately align national priorities with investment mandates, supporting domestic development, economic diversification, or strategic industries, while continuing to pursue long-term returns. The result is a rare combination of scale, patience, and alignment. In an increasingly fragmented investment landscape, that combination is proving powerful.

As investor horizons shorten and economic uncertainty mounts, sovereign wealth funds are playing a critical role in capital flows. They have both the mandate and the means to invest through cycles, take illiquidity risk, and underwrite future-focused projects.

The DB-to-DC transition is not going to reverse. Nor are the structural constraints of banks and insurers going away. That leaves sovereign wealth funds as one of the few actors with the capacity to think in decades rather than quarters.

^{1. Sarah Keohane Williamson, The CEO’s Guide to the Investment Galaxy (John Wiley & Sons, 2025).}

^{2. Adapted from Sarah Keohane Williamson, The CEO’s Guide to the Investment Galaxy (John Wiley & Sons, 2025), 39, and Thinking Ahead Institute’s Asset Owner 100 (2024).}