Chapter 2: From Passive Allocators to Active Investors
Chapter 2 recounts the funds' transition to active investment from their traditional function of simply allocating capital to external fund managers (which left them passive and little-known in the capital markets). The chapter goes on to highlight how they are increasingly active and direct in digital economy investments, collaborating among themselves as they become mature investors. Also in view is their cause/effect impact on the markets, their role in the rise of the unicorns, and the shrinkage of the public equities markets.
Part II: In Pursuit of the Digital Revolution
These chapters cover in detail sovereign investors' pursuit of digital revolution.
Chapter 3: The Global Hunt for Unicorns (Decacorns)
Chapter 3 turns its attention to the hunt for unicorns. Increasingly, sovereign investors are going direct into transactions in the tech industry and digital economy sectors, on par with private equity (PE) and venture capital (VC) funds. They are active globally, due to both overseas investments (global portfolio) and overseas presence (global offices).
The chapter chronicles high-profile investments in disruptive technology giants, such as e-commerce giants like Alibaba and JD.com, as well as sharing economy leading players like Airbnb, Uber, and WeWork, and AI/mobility pioneers GM Cruise, Tesla, and Waymo; their growing appetite to develop their own internal investment capabilities; and the close relationship between sovereign investors and national governments.
Chapter 4: Long-term Capital into the Digital Infrastructure
Chapter 4 highlights how, for the sovereign investors, the digital economy infrastructure – and the much broader digital ecosystem – has become another frontier asset class as a proxy to invest in technology. Digital infrastructure investment also provides an avenue to foster development goals and green initiatives, consistent with global government initiatives such as China's Belt & Road and Blue Dot of the US.
This combination has attracted large pools of sovereign capital into data centers, global digital logistics systems, digital satellite networks, and smart cities. The next big thing is the Internet of Things, and fintech, paytech, and digital health all form part of the future digital infrastructure that the sovereign investors are keen to invest in.
Chapter 5: Spurring Domestic Digital Transformation
Chapter 5 focuses on how, with such powerful positions, SIFs are being seen by their stakeholders not simply as vehicles for financial returns from digital infrastructure. They also enjoy significant leverage to serve multiple purposes for long-term investment strategies, solving countless needs from political pressures to domestic technology-infrastructure shortages.
New sovereign funds are being created to this end and existing funds are repurposed. Africa provides innovative examples of resource-based funds that foster the domestic digital ecosystem. This chapter describes the increase in collaboration among sovereign investors seeking to accelerate development of the domestic digital ecosystem from Italy to the UAE, from China to Russia, from Saudi Arabia to Egypt.
Chapter 6: Go Early, Go Nimble
Chapter 6 reveals that little could have prepared these investors for the world of earlier stage venture capital where their hunt now took them. It recounts the ways in which sovereign investors have needed to fundamentally reinvent themselves as early stage venture investors and their spectacular successes and humbling failures in this new realm.
Shifting their investment process to support digital startups requires different key performance indicators, revenue standards, business models, growth potential, government relations, and more. To evolve in the changing landscape, they must strive to master early stage investing techniques, a field historically occupied exclusively by VC funds, to capture growth from emerging tech startups.
Chapter 7: The Hunt for the Hunting Party
This chapter reviews the operational challenges that sovereign investors encounter as they seek to participate in the digital economy by recruiting larger, tech-savvy, local teams and moving close to the innovation source. The chapter contrasts successful strategies with those that have not worked as well, highlighting the unique advantages – and disadvantages – of sovereign investors as team builders. It concludes with a look at alternative routes to engage in the digital ecosystem, most notably the $100 billion Vision Fund, but also the seeding of new managers and fostering startup interaction among portfolio companies.
Part III: Global Expansion, Regulatory Responses, and International Policies
These chapters address the regulatory response to the pursuit of the digital revolution by sovereign investors. All these tensions, currently highlighted by the China–US tech war, are playing out across the globe, from UK to Australia, from Germany to Canada, from Israel to Japan.
Chapter 8: Overseas Expansion and National Security Collide
This chapter examines the national security implications in home and host states as a result of sovereign investors' activities – both overseas investments (global portfolio) and overseas presence (global offices). We explore how national security legislation has adjusted to the rise of sovereign investors with their ties to foreign governments. The Committee on Foreign Investment in the United States (CFIUS) mechanism and the related US–China tensions serve as one case study, as well as similar regulations in Australia, Canada, EU member states, and Israel. Finally, the chapter traces the evolution of the concept of “national security” from weaponry to critical infrastructure to data, where it inevitably collides with the ambitions of sovereign investors in the digital economy.
Chapter 9: Tech Transactions Snared by Geotech Tensions
This chapter focuses on sovereign investors' direct investments into the AI and digital technology sectors. These activities have contributed to geopolitical tensions and tightened cross-border regulations. Deal blockings are on the rise under the US CFIUS and similar regimes of the EU, Israel, and Australia. Meanwhile, also on the rise, this time for US institutions, are restrictions on investments into foreign jurisdictions like China.
Such developments will profoundly impact venture capital and the startup ecosystem in the US, China, and elsewhere, because sovereign capital, whether foreign SIF funds or US pension funds, has been a major source of funds for the latest tech boom. The chapter concludes