Using Fund-of-Funds to Enhance Global Economic Security

Governments are increasingly employing fund-of-funds (FoF) investment structures as a primary mechanism for economic statecraft, using them to simultaneously pursue geopolitical power and economic competitiveness.

In an analysis published April 15, 2026, Lars Frølund and Fiona Murray state that in a global economy characterized by cross-border capital flows and intertwined supply chains, national investment alone is insufficient for economic security.

Fund-of-funds vehicles allow governments to bolster resilience and advance strategic objectives by protecting sensitive technologies and limiting the influence of adversarial actors.

The Mechanism of Strategic Investment

A fund-of-funds is an investment vehicle that invests in a selection of different funds rather than investing directly in stocks, bonds, or other individual assets.

When applied to economic statecraft, these vehicles pool capital to invest in venture funds instead of investing directly in individual securities or companies.

This approach is designed to strengthen innovation ecosystems while steering capital toward capabilities, technologies, and markets that are deemed strategically important.

According to research from MIT, these structures serve as a policy mechanism aimed at startup ventures, allowing states to address the dual challenge of maintaining economic competitiveness while expanding geopolitical influence.

Strategic Objectives and Implementation

The use of strategic investment is often linked to broader national security goals. For example, the U.S. Development Finance Corporation (DFC) recently made a $600 million investment in a critical mineral consortium intended to strengthen national security and U.S. Economic competitiveness.

This alignment of financial investment with national security is also reflected in government strategy. In September 2025, the U.S. Department of the Treasury, the Department of State, and the United States Agency for International Development (USAID) submitted a joint report to Congress outlining a strategy for using appropriated funds to enhance the economic stability and security of the United States and its partner countries.

The primary goals of these strategic investment frameworks include:

• Steering investment toward critical technologies and capabilities.
• Reducing reliance on adversarial influence within sensitive sectors.
• Building resilience within global supply chains.
• Supporting innovation ecosystems through venture capital policy.

Risks of Political Capture

Despite the potential benefits, the effectiveness of fund-of-funds depends heavily on design. Frølund and Murray warn that poorly designed structures can fail by reproducing specific patterns of inefficiency.

But when poorly designed—as they often have been—these structures reproduce the all-too-familiar failures of politically captured investment programs.

Lars Frølund and Fiona Murray, Project Syndicate

The risk of politically captured investment programs suggests that when political motives override market logic or strategic technical requirements, the intended benefits to the innovation ecosystem and national security may be compromised.