by Brian DeChesare Comments (10)

Sovereign Wealth Funds: The Full Guide to the Industry, Recruiting, Careers, and Exits

Sovereign Wealth Funds

When you ask most people about their “career goals,” they sound something like this:

  1. Make a lot of money or gain power/prestige.
  2. Take little-to-no risk.
  3. And work normal, stable hours.

If you’ve read this site before, you know this set of goals is impossible for most finance careers: you take a lot of risk, work long/stressful hours, or both.

But one possible exception lies in sovereign wealth funds (SWFs), which are similar to funds of funds in some ways.

The pitch is that you do a mix of high-level “macro” work and occasional “micro” work, such as direct investments, you may get to live in exotic locations and pay less in taxes, and you work much more normal hours than in other finance jobs.

And while the pay ceiling is lower, it’s not that big a difference until you reach the top levels – especially after factoring in the lower taxes.

I’ll address all these points here and cover the advantages and disadvantages of SWFs, but let’s start with the definitions and overview:

What Are Sovereign Wealth Funds?

Sovereign Wealth Funds Definition: Sovereign wealth funds (SWFs) are state-owned vehicles that invest significant reserves from commodities or foreign exchange assets in various sectors to build up savings, stabilize the government’s revenue during downturns, and diversify wealth and income.

Sovereign wealth funds are the most common in countries with one or more of the following:

  1. Commodity Wealth – Oil-producing countries tend to have cash surpluses, especially when oil and gas prices are high.
  2. Trade Surpluses – Some countries, like Singapore, are not rich in commodities but serve as trade hubs and generate significant revenue from these activities.
  3. Tax Revenues and Pension Contributions – In places like Canada and Australia, the pension or “superannuation” system generates significant funds to invest (but some would call the investment firms there “pension funds” or “superannuation funds” rather than SWFs).

SWFs in places like the Middle East, Norway, and Russia are heavily linked to commodities, while the ones in places like China, Hong Kong, and Singapore have more diversified reserves.

Commodity-linked funds want to diversify and avoid complete dependency on oil, gas, or lithium prices, while other funds are motivated by some combination of diversification and “saving for future generations.”

Sovereign Wealth Fund Strategies

Sovereign wealth funds can invest in almost anything, from equities to fixed income to real estate, infrastructure, private equity, hedge funds, and more.

Some SWFs operate like long-only asset managers (i.e., mutual funds) that allocate their assets top-down and then pick specific indices, companies, and securities that meet their criteria.

Others operate more like funds of funds and delegate much of the investing process to private equity firms, hedge funds, and other asset managers.

More recently, many SWFs have built direct investing teams to pursue minority-stake deals, credit deals, and even control deals for > 50% stakes in companies.

Examples in this last category include GIC and Temasek in Singapore and Mubadala in Abu Dhabi.

Also, many SWFs without official direct investment teams still co-invest with PE firms they’ve invested in, like the private equity fund of funds model.

Some sovereign wealth funds also pursue unconventional strategies.

One good example is the NZ Super Fund in New Zealand, which invests based on “diversifying risk” rather than a traditional asset allocation.

The firm uses passive and active strategies, often deviating from its reference portfolio based on the macro environment.

Sovereign wealth funds have much longer time horizons and more “permanent capital” than traditional PE firms, hedge funds, and funds of funds, and these points create differences in timing, strategy, and willingness to pay.

For example, many SWFs take their time making decisions and are sometimes willing to outbid traditional investment firms in areas like infrastructure assets.

They do not “need” to exit their investments within a specific time frame because they have no Limited Partners, so they can do things that traditional firms cannot.

The Top Sovereign Wealth Funds

You can easily find a list of the “biggest” sovereign wealth funds online: the Government Pension Fund (GPF) of Norway, the China Investment Corporation (CIC), the Abu Dhabi Investment Authority (ADIA), the Kuwait Investment Authority, GIC in Singapore, the Public Investment Fund (PIF) in Saudi Arabia, the Hong Kong Monetary Authority Investment Portfolio, Temasek, the Qatar Investment Authority (QIA), Mubadala, and so on.

Some people would also put CPPIB in Canada (and other Canadian funds) on this list, but these firms are usually classified as pension funds rather than sovereign wealth funds.

But the more relevant question is: “Which of these funds would you want to work at?”

And the short answer is: “Some of the Middle Eastern ones, plus GIC and Temasek.”

These tend to be the funds that pay better, actively recruit new entry-level hires, and do at least some direct investing.

Funds like Mubadala, GIC, and Temasek are good for direct investing work, and ones like ADAI, PIF, and QIA offer competitive pay, even if there’s less direct investing.

Some other large funds might also qualify; unfortunately, there’s little information available on most of them.

I assume you probably need to be a Chinese or Hong Kong national to have a good chance at anything based in China or HK, but I’m not 100% certain of that (feel free to clarify in the comments).

On the Job at a Sovereign Wealth Fund

On the Job at a Sovereign Wealth Fund

To understand the nature of the job, you should know what PE Analysts, PE Associates, and HF Analysts do because much of it is similar.

If you compare a junior role at a sovereign wealth fund to these jobs, the work tends to be broader and shallower:

For example:

  • Time – Traditional PE: You might dig into 2-3 potential deals each week, build models, and conduct market research. You’ll also spend time supporting existing portfolio companies and reviewing their results. Almost everything you do at the junior level is “micro” in nature.
  • Time – SWF: You might spend 50% of your time looking at specific deals and the other 50% on higher-level asset allocation decisions (sectors, strategies, funds, etc.) and supporting your Portfolio Manager’s ideas and requests.
  • Presentations – Traditional PE: The “deal review” pace above means that you could make several presentations to the investment committee or Board each month. And each one will take a fair amount of time and effort.
  • Presentations – SWF: You will not make nearly as many presentations to the committee or Board; it might be closer to one per month, depending on the number of direct investments you work on.
  • Deal Approval – Traditional PE/HF: To win approval for an investment, you don’t necessarily need to please “everyone” – just the key decision-makers. But they will dig into your work and ask detailed questions.
  • Deal Approval – SWF: More people will review your process and recommendations, but they won’t go into as much detail as much as a traditional PE Partner. The approval process might take longer (say, 2-3 months rather than 1 month) because more people need to weigh in.
  • Depth of Work – Traditional PE/HF: You’ll spend time doing market research, meeting management teams/customers/competitors, and building detailed financial models for any deal that moves past your quick screening.
  • Depth of Work – SWF: You’ll still complete many of these tasks, but not to the depth that you would in most PE/HF roles. For example, you might focus on the model’s 2-3 key points that will drive returns rather than getting all 273 line items correct.
  • Returns – Traditional PE: The targets vary by fund type and strategy, but traditional buyout funds usually achieve IRRs in the 15 – 20% range.
  • Returns – SWF: Targets are often 3 – 5% lower, whether directly stated or implicitly acknowledged. This might not sound like much, but it could be the difference between a 2.0x and 1.6x multiple over 5 years (for example).

If you do direct investing, you’ll be closer to the “PE/HF” side of the spectrum, but there will still be some differences.

For example, minority-stake investments, credit deals, and co-investments in leveraged buyouts are all common.

But control transactions where your fund acquires over 50% of a company are less common, partly because of rules restricting foreign investment ownership in many countries.

Sovereign Wealth Funds: Salaries, Bonuses, and… Carried Interest (???)

You should expect pre-tax compensation that’s ~25% lower than pay at large PE firms at the junior levels.

So, expect something in-line with pay at middle-market firms, such as $200 – $250K rather than $300K+ total.

As you move up, the pay differential increases because base salaries and bonuses increase more slowly, and carried interest is much lower or non-existent; at the Director level, it might be more like a 40-50% difference.

At the senior levels (MD or Partner), earning $1 million or more is still possible, but it’s less common or “expected” than in traditional PE.

But the biggest difference relates to carried interest.

The “Limited Partner” of any sovereign wealth fund is the government, and the government does not like to pay high fees on its investments.

So, carried interest either does not exist or is greatly diminished at most of these funds, which means that the potential upside at the senior levels is much lower than in traditional PE.

Some places offer “shadow carry” or other vesting compensation that’s linked to performance, but the total amount is much lower than in direct investing roles.

That said, there is a tax advantage if you work in the main office of a sovereign wealth fund because the personal income tax rate is 0% in many Middle Eastern countries and only 22% in Singapore.

If you’re a non-U.S. citizen, these rates make a $200K total compensation package go much further than in other countries.

If you are a U.S. citizen, you still must pay U.S. taxes, but you’ll pay a significantly lower rate due to the foreign earned income exclusion.

So, you could easily earn more after taxes than in a traditional PE job in the U.S. or Europe – at least up to a certain level.

Lifestyle, Hours, and Promotions

The good news is that you also work much less in exchange for the reduced compensation.

At the junior level, you might work anywhere from 40 to 60 hours per week (the upper end of the range is more likely for direct teams), which is much less than most IB and PE groups.

Also, taking time off, planning vacations, and having a real life outside work are much easier.

The general attitude is that you’re in the office to work, but you’re not “on call” 24/7.

The bad news is that it can be quite difficult to get promoted, partially because working at a SWF is much more political than most PE firms and hedge funds.

Completely unqualified people sometimes get hired just because they’re connected to Powerful Politician X or Oil Baron Y, and hardly anyone at the top ever wants to leave.

Another issue is that many SWFs only hire local candidates, greatly prefer local candidates, or promote local candidates more quickly.

The classic example is Singapore, where you’ll get promoted more quickly as a Singaporean citizen at funds like GIC.

But it also happens at many Middle Eastern funds, so it’s not Singapore-specific.

If you’re in a SWF satellite office in the U.S. or Europe, this is less of an issue, but promotion there could also be tricky because these offices are smaller.

How to Recruit at Sovereign Wealth Funds and Win Offers

Recruiting at Sovereign Wealth Funds

As mentioned above, in some cases, you need to be a citizen of the SWF’s country to have a good shot at winning a job in the fund’s main office.

This varies by fund and region and changes over time, but it is something to consider before you apply for these roles.

Most SWFs do not recruit undergraduates, with some exceptions, such as GIC and Temasek (if you fit their profile).

So, your best option in most cases is to gain traditional investment banking or private equity experience and use that to move in.

It is possible to move in from backgrounds like equity research, hedge funds, or asset management, but you should target groups that do asset allocation and public-market investments rather than deals.

Some larger funds use headhunters, but networking is essential to win these roles because the process is more like off-cycle private equity recruiting.

If you are a U.S. or European citizen with experience at a large bank, you probably have the best shot at Middle Eastern SWF roles at firms like ADIA, QIA, PIF, and Mubadala.

For more about this one, see our coverage of investment banking in Dubai.

Interviews and Case Studies

Just as the investment process is broader and shallower at SWFs, so is recruiting.

A typical process might look like this:

  • Round 1: You might speak with HR or investment staff about very standard questions (“Why the buy-side?” “How would you invest in Industry X?” “Why this firm?” “Why this country?”). They might ask you to pitch a stock, but it will be less formal than in ER and HF interviews.
  • Round 2: You answer other fit/behavioral questions about your leadership experience, strengths and weaknesses, and so on.
  • Round 3: You might have to prepare and present a short case study or investment pitch in this round (~60 minutes). For example, they could give you information about two similar companies (Visa and Mastercard, Google and Facebook, etc.), ask you to recommend investing in one, and have you answer questions from the PMs about your decision.

You are unlikely to get a traditional LBO modeling test, a growth equity modeling test, or even a simple 3-statement modeling test – but there may be exceptions for teams that focus on direct investments.

Unlike the private equity funds of funds process, you are also unlikely to get a “fund evaluation” case study where you recommend investing in a specific PE fund.

Sovereign wealth funds do more than just PE fund investing, so this task might be too niche for many teams.

The technical questions are similar to the standard ones in any IB or PE interview, but you should also expect broader questions about markets and the economy, similar to an asset management interview.

The best way to prepare for the case study or stock pitch is to practice reading about different companies and making decisions quickly.

You won’t have time to build a simple DCF model or do more than look at multiples and qualitative descriptions, so you must think and act quickly based on limited information.

Sovereign Wealth Fund Exit Opportunities

The good news is that at the junior levels, plenty of people at sovereign wealth funds move around to other buy-side roles.

For example, it’s possible to win offers at middle-market private equity firms, funds of funds, family offices, and even venture capital and growth equity firms if you have tech investing experience.

You can also potentially join a portfolio company if you’ve worked in a group that does direct or co-investments.

On the other hand, it is extremely unlikely that you will go from a SWF to a PE mega-fund because they tend to “discount” SWF experience and prefer candidates from the top bulge-bracket banks.

You can get into good business schools in the U.S. and Europe from SWFs, but your chances at the top 2-3 schools are slightly lower because they also tend to discount SWF experience, especially in the Middle East.

That said, if you do IB/PE first and then work at a sovereign wealth fund for 2-3 years, your exit opportunities will be only marginally diminished.

Your chances at hedge funds depend heavily on what you did at your fund.

You can move to strategies like long/short equity if you have experience there, but if you’ve only done high-level asset allocation, you won’t be competitive.

The bad news is that the exit opportunities get much more limited as you move up the ladder to the VP/Principal/Director level.

Most traditional PE firms will not hire SWF professionals who lack normal PE experience at this level, so many people end up “stuck” at SWFs.

They don’t want to leave and take a big pay cut, but they also can’t easily move to other roles that offer similar pay.

Do Sovereign Wealth Funds Live Up to the Hype?

While sovereign wealth funds have their downsides, I would argue that they come close to offering the perfect mix of high compensation and relatively normal hours.

They are especially good in two specific situations:

  1. IB/PE Burnout – Maybe you’ve worked in deal-based roles for a few years and enjoyed some of the work but want more of a life and a slower pace. In this case, joining a SWF for 2-3 years can be an interesting option that will set you apart from others without limiting your exit opportunities too much.
  2. Long-Term “Buy and Chill” Career – If you do not care about advancing to the MD/Partner level in traditional PE or starting your own PE fund, and you’d be perfectly happy earning $500K – $1 million while working relatively normal hours, senior-level jobs at SWFs can be quite cushy.

The main problem with sovereign wealth funds is that everything between these two career positions is tricky.

Getting promoted can be very difficult and political, you’ll deal with a lot of bureaucracy, and if you stay too long, you’ll likely take a big pay cut if you decide to leave.

So, I’m not sure I would recommend SWFs over traditional PE/HF/VC/GE roles if your main goal is career advancement.

But if you’re willing to make a side trip to the desert for a few years, you might find a few diamonds in the rough right next to the oil wells.

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys lifting weights, running, traveling, obsessively watching TV shows, and defeating Sauron.

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  1. Your blog is the best Brian! I work for a Middle East SWF and this article is an excellent representation. I can confirm that the pay-to-hours-worked ratio is excellent. On the private side, the Directors make about $1mm+ and work 10-6, 5 days a week. There also is a paternalistic/welfare-state culture that is against cutting people.

    Having interviewed with CPP, they are definitely on the high end of pay for large pensions/quasi sovereigns. Cannot think of a more stable job in the industry.

    1. Thanks for adding all that. I would love to be a Director at one of these SWFs, but then I think about living in the Middle East and realize there’s a reason for that pay/work ratio…

  2. Thanks Brian – again another fantastic article that hits all the key points perfectly. I’ve been reading your content for many years now and it’s night and day above anything else out there on the internet. I’ve also been a happy customer of your modelling courses back in my early analyst days!

    This article is very timely and I feel as though there is heightened interest in SWFs, particularly PIF given what they are doing on the global sporting stage.

    Thanks again! It’s much appreciated.

    1. Thanks! Glad to hear it.

  3. Frank Chen

    Your guess is correct about the Chinese SWFs. Not only is it almost impossible for foreigners, but also very difficult for the plebeians to get hired. Good luck unless you come from a wealthy family with business connections or are the child of some CCP official.

    1. Thanks for confirming and adding that. Not sure it’s a great idea to work at any CCP-owned firm…

  4. Very different than what I thought/expected. Thanks for sharing. Always learn a lot from your article.

    1. Threadneedles

      CPPIB is not based in Alberta. I think you have confused it with AIMCo.

      1. Thanks, corrected (this was a typo / from an earlier version).

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