The Banking Executive Magazine - May 2026 Issue - New

Capital with Purpose From a commercial perspective, clear return expectations are essen- tial. FoFs should establish perform- ance benchmarks for both the funds they invest in and the underlying portfolio companies. This is not merely a financial consideration; it is a safeguard against the erosion of discipline that can occur when strategic objectives dominate deci- sion-making. Private sector participation also plays a critical role. By requiring co-invest- ment from private investors, FoFs can ensure that risk is shared and that market signals remain relevant. Over time, as ecosystems mature, the re- liance on public capital should di- minish, allowing private markets to assume a greater role. Transparency in trade-offs is another key consideration. Governments must be explicit about the balance they are willing to strike between fi- nancial returns and strategic out- comes. This clarity helps manage expectations and reduces the likeli- hood of ad hoc adjustments driven by political pressures. Different models illustrate how this balance can be achieved. In some cases, governments have capped their share of returns to incentivize private investors to assume greater ownership. In others, they have pri- oritized ecosystem development over immediate financial gain. Mul- tilateral approaches, meanwhile, have sought to distribute investments across allied markets, reinforcing col- lective capacity. EMBEDDING SECURITY ACROSS THE INVESTMENT CHAIN As FoFs take on a more strategic role, the integration of security considera- tions becomes indispensable. This extends beyond high-level policy and into the operational fabric of the investment process. At the fund level, governance struc- tures must ensure that decision-mak- ers are equipped to assess not only financial risks but also security impli- cations. In sensitive sectors, this may involve vetting key personnel and es- tablishing secure channels of com- munication with relevant authorities. Transparency is equally critical. In- vestors—both domestic and interna- tional—should be required to disclose the origins of their capital. This enables authorities to identify and mitigate the influence of actors whose interests may not align with national or regional priorities. Portfolio companies, too, must be subject to rigorous scrutiny. Complex ownership structures, opaque fund- ing arrangements, and indirect links to high-risk jurisdictions can all pose challenges. FoFs, particularly when acting as anchor investors, are well positioned to set standards for due diligence and governance across the funds they support. This influence should not be under- estimated. By embedding robust re- quirements into their investment criteria, FoFs can shape the behavior of venture capital markets more broadly. Over time, such practices can contribute to the establishment ISSUE 209 MAY 2026 the BANKING EXECUTIVE 23