Alternative investment strategies are evolving alongside geopolitical, economic and technological developments. Defence and dual-use technologies are receiving renewed attention. Critical minerals have become increasingly strategic. Shipping remains essential to global trade, while energy-transition and infrastructure projects continue to create investment opportunities, including across emerging markets.
For fund sponsors, these sectors can represent legitimate investment opportunities. The question is not whether they should be avoided, but whether the fund’s existing governance and control framework remains equipped for the strategy being pursued.
This starts even before considering additional controls.
Is the investment strategy consistent with the fund’s and the promoter’s risk appetite? Does the existing risk framework adequately capture the sectors, geographies, counterparties and activities involved? Are any internal restrictions, investment criteria or previously defined risk limits relevant?
A move into a new sector does not necessarily mean that the investment falls outside the existing risk appetite. But where the strategy and the established framework are no longer aligned, this deserves to be identified and discussed rather than simply addressed by adding more controls.
This also raises a broader governance question: when a fund moves into a new type of asset or sector, does this trigger a reassessment of the existing risk framework?
Once alignment with the risk appetite is established, the next question is whether specific or additional controls are appropriate for the underlying strategy.
A fund investing in a defence company does not face exactly the same considerations as one acquiring vessels, financing a mining operation or developing renewable infrastructure.
Different strategies call for different questions.
Investing in Defence and Weapons
Defence has become an increasingly visible investment theme against the backdrop of changing geopolitical priorities and increased defence spending.
But “defence” can cover very different activities: weapons manufacturers, components, ammunition, military vehicles, communications systems, cybersecurity, maintenance services or companies supplying both military and civilian customers.
Understanding the underlying activity is therefore an important starting point.
What exactly does the portfolio company manufacture or provide? Who buys its products? Where are they ultimately delivered and used? Are particular countries, customers or intermediaries involved? Could arms embargoes, sanctions or export restrictions become relevant? Does the business operate through agents or distributors in jurisdictions where corruption exposure deserves additional consideration?
And does the entity have access to sufficient information to understand if those elements change during the holding period?
Defence investments can fit within a fund’s strategy and risk appetite, while bringing considerations that may not arise in a more conventional portfolio. The nature of the products, their destination, end-users and the jurisdictions involved will determine where additional attention may be needed.
Investing in Dual-Use Goods and Technologies
Dual-use naturally follows the defence discussion because the distinction between civilian and military applications is not always straightforward.
Software, electronics, drones, sensors, navigation systems, telecommunications equipment, advanced materials and other technologies can have perfectly legitimate civilian applications while also being capable of military or other sensitive uses.
This changes the questions that may need to be considered.
What can the technology actually do? Who are its customers and end-users? Where is it exported? Are distributors or intermediaries involved? Could the destination or intended use affect the analysis? Are specific export-control restrictions or authorisations relevant?
The analysis may also evolve over time. A new customer, market, application or end-user could change the risk profile of a technology that initially presented a different exposure.
For an investment fund, understanding the company solely through its corporate profile may therefore not be sufficient. The capabilities, destination and potential use of the underlying technology may also form part of the risk picture.
Investing in Shipping
Shipping presents a very different set of considerations because the asset itself moves across jurisdictions.
A vessel can change routes, ports, cargoes, charterers and, over time, ownership or flag. The structure surrounding the asset can also involve several parties: registered owners, beneficial owners, operators, managers, charterers and insurers.
This raises practical questions.
Which vessels are actually involved in the investment? Who owns, operates and charters them? Under which flag do they sail? Which routes and ports are relevant to their activity? What types of cargo are transported? Are particular jurisdictions involved? Could certain trading patterns or counterparties create sanctions or circumvention exposure?
The dynamic nature of the asset is particularly relevant. Information obtained at acquisition may not necessarily describe the vessel’s exposure throughout the entire holding period.
The characteristics of shipping require a more dynamic view of the asset. A corporate review at acquisition provides only part of the picture: routes, ports, cargoes, charterers, ownership or flag may change throughout the holding period.
Investing in Mining and Critical Minerals
Mining and critical minerals are another area receiving significant strategic attention.
The investment opportunity may be compelling, but understanding a mining asset often means looking beyond the company holding the investment.
Where is the mine located? Who granted the licence or concession? Who are the local partners? What relationships exist with public authorities? How was access to the land obtained? Who ultimately purchases the extracted commodities?
Depending on the mineral and jurisdiction, additional considerations may arise around corruption, government interaction, conflict exposure, human rights, environmental issues, local communities and the wider supply chain.
Changes can also matter: a new offtaker, local partner, concession arrangement or political environment may alter the exposure during the life of the investment.
The geography of the asset can therefore be just as important as its corporate ownership.
Investing in Green Projects in Emerging Markets
Renewable energy and other green infrastructure projects can offer attractive investment opportunities, particularly in markets where significant infrastructure development is still required.
But the environmental purpose of a project does not remove the need to understand the environment in which it operates.
How was the project awarded? Who granted the relevant concession, licence or land rights? Who are the local partners and contractors? What interaction exists with public authorities? Is public funding involved? Where are equipment and critical materials sourced? How transparent is the procurement process?
The underlying supply chain may also introduce considerations that are not immediately visible from the project itself.
A solar, wind or infrastructure project may therefore have a clear environmental objective while still requiring careful consideration of country risk, corruption, sanctions, supply-chain or other financial-crime exposure.
The Investment Strategy Should Shape the Control Framework
These examples are not intended to create a checklist for defence, dual-use technologies, shipping, mining or any other investment strategy.
They illustrate something more fundamental.
Asset-side controls should make sense in the context of what the fund actually invests in.
Existing due diligence processes may remain entirely appropriate for certain strategies. In other cases, additional questions, data, expertise or monitoring may be necessary to understand risks that are specific to the underlying assets.
The availability of information is part of that assessment. A control framework can only operate effectively if the entity receives the information needed to identify relevant developments. Depending on the strategy, this could mean changes in customers, end-users, destinations, routes, counterparties, concessions or other characteristics of the underlying asset.
Asset-side due diligence continues beyond the investment decision. The control framework should be capable of identifying material changes in the asset’s risk profile throughout the holding period.
This is also not the responsibility of one individual or one control function.
Depending on the investment, relevant expertise may sit across investment management, risk, compliance, AML/CFT, sanctions, legal, ESG or external specialists. The entity remains responsible for ensuring that relevant risks are identified, understood and appropriately addressed within its governance framework.
New Strategies Do Not Necessarily Mean More Restrictions
The development of new investment themes should not automatically lead to a more restrictive approach.
It may simply require a more tailored one.
As alternative investment strategies evolve, fund sponsors and their service providers may benefit from asking a few fundamental questions:
Is this strategy consistent with our risk appetite?
Do we understand what makes this asset or sector different?
Do our existing controls capture those differences?
And will we know if the risk profile changes after the investment is made?
Additional controls are not a substitute for alignment with the risk appetite. But where the strategy is aligned, they can help ensure that the control framework evolves alongside the investment activity.
For a defence company, this may involve understanding products, customers and end-users. For dual-use technology, capabilities and destination may matter. For shipping, the vessel and its movements become relevant. For mining, geography, concessions and the commodity chain come into focus. For green infrastructure, the project, public authorities, contractors and supply chain may require greater attention.
Different assets. Different environments. Different questions.
At SableRock, we support fund sponsors in the establishment and operation of Luxembourg investment structures, combining corporate, regulatory and operational expertise with governance and control frameworks tailored to the underlying strategy.