States of Power:
Sovereign Capital and the New Technological Order

Trillion-dollar sovereign funds are now fueling tech — pouring capital deeper and faster into AI, semiconductors, and critical infrastructure.

Everybody who’s anybody in tech seems to know Sheikh Tahnoon bin Zayed Al Nahyan of Abu Dhabi. The sovereign wealth fund operator is on a first-name basis with Tim Cook of Apple, Elon Musk of Tesla, Mark Zuckerberg of Meta Platforms, Brad Smith of Microsoft and Sam Altman of OpenAI, among others. Tahnoon even physically grappled with Zuckerberg, a fellow devotee of Brazilian jiujitsu, on a visit to the United States last year, The Wall Street Journal reported in February.

A Match Made in Silicon Valley

Sovereign wealth funds such as the ones under Tahnoon’s control have trillions of dollars under management. They seek to diversify and future-proof their economies. And the people managing many of them – Tahnoon included – have the authority to write big checks quickly, unlike managers of pension funds and other big pools of money, who are largely passive investors. That makes them intensely interesting to the tech sector, which needs a massive infusion of outside capital to build AI data centers and the like.

In short, tech and sovereign wealth funds fit together naturally. “Each side has something the other wants,” Steven Feldstein, a senior fellow at the Carnegie Endowment for International Peace, told me.

There’s a lot that can go wrong, though. Sovereign wealth funds can invest poorly, which wastes the money of their citizens or subjects. There are abundant opportunities for self-aggrandizement and corruption. Also, host governments of the tech companies sometimes put a stop to the transfer of advanced technologies to funds in countries they consider untrustworthy, disrupting business. Or the opposite: Governments don’t put a stop to the transfers when they should, which creates a different set of problems.

In short, the relationship between sovereign wealth funds, tech companies and governments that host them is a delicate dance. Good things are happening, but toes are getting stepped on, and that seems likely to continue.

The Trillion-Dollar Elephant

Sovereign wealth funds are government-owned investment funds, mostly in countries that have accumulated big pools of money from trade surpluses. Because there’s no standardized definition of them, there’s disagreement about how much money they manage, from around $9 trillion to around $13 trillion.

Some SWFs, such as Norway’s Government Pension Fund Global, which is the world’s largest, are big but quiet, like domesticated elephants. They behave like giant index funds, seeking only to match the performance of the global stock and bond markets. Such “savings” funds account for about half of all SWF assets under management, according to the International Forum of Sovereign Wealth Funds.

More interesting to the tech sector are the funds with a strategic or national development focus, along with hybrid funds, which invest some of their money strategically and some passively. Those together manage about as much money as the pure savings funds such as Norway’s.

Creeping Up the Risk Curve

A long period of very low global interest rates prodded sovereign wealth funds to invest strategically rather than passively – to “creep up the risk curve” to make a higher return on their money, Victoria Barbary, the director of strategy and communications at the International Forum of Sovereign Wealth Funds, told me.

Sovereign wealth funds punch above their weight. It’s true that they are dwarfed in terms of assets under management by mutual funds ($69 trillion in 2023), pension funds ($56 trillion), insurance funds ($40 trillion) and private wealth ($87 trillion), according to a compilation by TheCityUK.

But sovereign wealth funds are growing at a faster rate than other sectors. (They had just half a trillion dollars under management as recently as 1990.) Plus, they’re more influential than other investment pools because of the discretion that their managers have.

“This is capital that is easily deployed,” Feldstein said. “You can come to a sovereign wealth fund and with very few checks get an investment in the billions of dollars. That explains why tech companies desperately trying to raise money are going to Abu Dhabi, Riyadh, Doha.”

The Venture Capital Revolution

The influx of money from sovereign wealth funds along with other private sources such as pension funds has transformed venture capital, Jerome Engel, a venture capital expert at the University of California-Berkeley’s Haas School of Business, told me. For one thing, he said, “it has allowed companies to stay private rather than go public. This has broken down the efficiency of the public markets.”

Special Treatment for Special Money

Sovereign wealth funds of the strategic orientation tend to demand special treatment in exchange for their money. For example, they may want the right to co-invest in companies alongside private equity or venture capital investors. That gives them a view into the companies that ordinary limited partners don’t have.

In some cases, the funds seek and get board seats. Singapore’s GIC and Temasek have cultivated relationships with U.S. venture capital and hedge funds. That gave them early access to investments in Airbnb, Stripe and others. Some funds have offices in key cities such as San Francisco to be close to the action. It’s also common for them to get help from the tech giants in the development of their domestic economies. For example, Lucid Group, an American manufacturer of electric vehicles that’s majority-owned by Saudi Arabia’s Public Investment Fund, opened Saudi Arabia’s first auto plant in 2023.

When Sovereign Wealth Goes Wrong

The marriages, though, are not entirely happy. Sometimes sovereign wealth funds simply don’t invest well. Saudi Arabia’s Public Investment Fund invested in the Vision Fund and Vision Fund 2 of SoftBank, the world’s biggest venture capital fund focused on tech. The Vision Fund was an early investor in Nvidia but dumped its shares before their price exploded. It lost money on ill-advised investments in companies such as WeWork, the coworking space company. This year Masayoshi Son, the chief executive officer, conceded that he hadn’t delivered on commitments to the Saudi ruler and said, “I still owe him.”

Overreach is a constant risk for sovereign wealth funds. Neom, a planned futuristic city owned by the Saudi Public Investment Fund, shows what can go wrong when ambition is unmoored from financial markets that insist on a path to profitability. Neom is the brainchild and pet project of Saudi Crown Prince Mohammed bin Salman, who chairs the Public Investment Fund. Neom is eventually supposed to involve a 110-mile-long building housing 9 million people, a ski resort and a floating business district. But only a small fraction has been built even though expenses have already exceeded $50 billion. There have been missteps by many other sovereign wealth funds, including those of Kazakhstan, Libya, Nigeria and Venezuela.

The Man Behind the Dark Glasses

Investing poorly is only one way things can go wrong, though, and not the most important for the rest of the world. From a geopolitical perspective, the bigger concern is that sovereign wealth funds will gain undue influence in critical sectors of the economy. Along those lines, Sheikh Tahnoon of Abu Dhabi has become the most interesting character in the sovereign wealth fund world. He is laser-focused on technology, in particular artificial intelligence, which has become a battleground for the world’s tech powerhouses.

Tahnoon personally controls private and state assets worth $1.5 trillion, Bloomberg Markets magazine reported last year. He wears dark glasses, including indoors, because of light sensitivity. He has a black belt in Brazilian jiujitsu and obsessions with computer chess and bicycling. He is the national security adviser of the United Arab Emirates and a brother of the president, Sheikh Mohamed bin Zayed Al Nahyan. He ran national security a decade ago at the time of Project Raven, when former U.S. intelligence operatives helped the Abu Dhabi government spy on its critics, along with militants and other governments. (Whether he was personally involved in Project Raven remains unclear.)

The AI Empire Builder

In Abu Dhabi, Tahnoon’s power as an investor is unmatched. He is chairman of the Abu Dhabi Investment Authority, one of the world’s largest sovereign wealth funds, as well as a second fund, ADQ; runs First Abu Dhabi Bank, the emirate’s biggest; and heads a conglomerate called International Holding Co. His special interest, going back to his early interest in computer chess, is artificial intelligence. He founded Group 42 Holding (G42), which invests in artificial intelligence, and last year co-founded MGX, another AI venture.

Tahnoon is also fully plugged into global tech. Microsoft invested $1.5 billion in G42 in a deal that will give Microsoft access to emerging markets and G42 access to Microsoft’s cloud computing power. MGX invested recently in OpenAI as well as two of its rivals, Elon Musk’s xAI and Amazon-backed Anthropic. It’s also backing a project announced in January by President Trump, Stargate, an AI data center project that will be led by OpenAI and Japan’s SoftBank.

That Tahnoon has been able to integrate so tightly into the U.S. tech sector is remarkable because Abu Dhabi has ties to China as well as to the United States. Last year the Chinese and Emirati air forces held joint exercises, and officials of the two nations described the last few years as a “golden and distinguished era” of cooperation. To allay concerns about Chinese influence, Tahnoon’s G42 divested from Chinese AI firms and agreed to strip Huawei technology out of its systems.

The Chip Wars: Biden vs. Trump

One of the Biden Administration’s final acts was to control the diffusion of American-made AI chips, limiting full release to 18 trusted partner nations. Abu Dhabi, Saudi Arabia and most other nations were relegated to a second tier of nations that were ineligible to receive the latest AI chips. (China and a handful of other nations were in the third tier, full exclusion.) The Trump administration rescinded the Biden rule in May, a huge victory for the Saudis, the emirates and others. The U.S. and U.A.E. governments immediately announced an “AI acceleration partnership” to build one of the world’s largest data centers in Abu Dhabi, running on millions of Nvidia chips.

The fluctuations in the relationship between the United States and Abu Dhabi typify the stresses that can occur when sovereign wealth funds, which of course are arms of national governments, get involved in tech investments that are matters of national security.  China hawks and other critics of the AI acceleration partnership warned that some of the chips could be siphoned away to China, or that Chinese firms would be able to tap into the data center. David Sacks, the tech entrepreneur who negotiated the deal for the United States, has denied that is a risk and argues that the deal will tie the emirates more securely to the United States.

The Kushner Connection

Here’s where influence peddling, or the potential for it, enters the picture. Sovereign wealth funds, some of them anyway, are prone to it because they operate opaquely, with little supervision. Lunate, an arm of Tahnoon’s empire, participated with the Qatar Investment Authority before last year’s presidential election in a $1.5 billion investment in Affinity, the investment fund run by President Trump’s son-in-law, Jared Kushner.

That looks a lot like trying to curry favor with the U.S. president, although Kushner said, “I made very clear to them that in the event that Trump was elected, that they should not expect anything from me.” The Saudi Public Investment Fund invested $2 billion in Affinity in 2020 despite objections from the fund’s advisers about the deal’s merits. More recently, Tahnoon’s MGX said it would use the stablecoin of President Trump’s World Liberty Financial to pay for a $2 billion investment in the cryptocurrency exchange Binance. 

The Governance Gap

“There are systemic governance issues and regulatory gaps that can enable SWFs to act as conduits of corruption, money laundering, and other illicit activities,” the Carnegie Endowment for International Peace said in a report last year.

There is a code of conduct, the Santiago Principles, that’s supposed to keep sovereign wealth funds on the straight and narrow path. It was created by the funds themselves in 2008 under the auspices of the International Monetary Fund. One of the 24 principles is that investments should be “based on economic and financial grounds,” and that if investments are subject to any other considerations, “these should be clearly set out in the investment policy and be publicly disclosed.”

Compliance with the principles is voluntary, and uneven. They’re useful nevertheless in setting a standard that sovereign wealth funds can and in some cases do strive to meet.

Realism, although not among the Santiago Principles, is also valuable. Operators of sovereign wealth funds go astray when they gun for rapid, radical transformation of their economies. Everyone, it seems, wants to build the next Silicon Valley.

 “Nobody’s going to replicate Silicon Valley,” said Berkeley’s Engel, who edited a 2022 book, “Clusters of Innovation in the Age of Disruption.” “What people need to do is build local ecosystems of innovation. They need to participate in a value-added way in the global network.”