The Banking Executive Magazine - May 2026 Issue - New

security and, in many cases, national defense. As a result, FoFs are being recali- brated to serve dual purposes: ad- vancing economic security while maintaining commercial discipline. This shift reflects a broader recogni- tion that capital markets, left entirely to their own logic, may not always align with national or regional prior- ities. DESIGNING FOR DUAL OBJECTIVES The central challenge lies in balanc- ing two distinct but interconnected mandates. On one hand, FoFs must operate within a credible commer- cial framework to ensure efficiency, accountability, and long-term sus- tainability. On the other, they must support clearly defined strategic ob- jectives that may not always yield immediate financial returns. Achieving this balance requires de- liberate design. First, governments must articulate a coherent economic security strategy that identifies prior- ity sectors and technologies. This in- volves not only selecting areas of investment but also clarifying the in- tended outcomes—whether related to defense capabilities, civilian appli- cations, or a combination of both. Equally important is ensuring that supported companies contribute meaningfully to domestic or allied economies. This goes beyond legal domicile. It requires tangible com- mitments to research, development, and manufacturing within target ju- risdictions. Without such criteria, capital risks flowing into entities that offer limited strategic value. the BANKING EXECUTIVE 22 ISSUE 209 MAY 2026