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Trump wants a sovereign wealth fund for the U.S. What are they?

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Sovereign wealth funds are some of the most powerful — and secretive — investors in the world, with more than US$13 trillion estimated to be in their accounts. Run by government entities in a wide variety of countries, they’re known to write the biggest checks in finance and have occasionally been the source of enormous scandal.

Within the next 12 months, President Donald Trump wants the US federal government to have one of its own, too — potentially to buy out the popular social video app TikTok.

What is a sovereign wealth fund?

Sovereign wealth fund is a fairly amorphous label. At its broadest, it can encompass any investment vehicle or fund that’s run or owned by a government entity. According to Diego Lopez, managing director at Global SWF, a consulting firm that tracks such funds, there are already more than 20 in the US, largely run at the state level. The Alaska Permanent Fund Corporation had a value of $79.6 billion as of December.

How do sovereign wealth funds work?

Generally, they fall into three categories. One starts with cash. One starts with assets. And one starts with investing goals.

The first type is founded as a large pool of wealth that is then invested in a variety of assets. The idea is to boost returns, typically to build a reserve or “rainy day” fund.

The second is more akin to a holding company, into which a variety of government-owned assets are transferred. After selling down its stake in these assets — or taking out loans using them as collateral — the fund can use the cash raised to re-invest or buy new assets.

The third — and most fraught — approach involves creating a vehicle that aims to attract and facilitate outside investment for a project such as improving infrastructure. Such vehicles are also known as strategic investment funds. This is a newer approach that can be useful in markets that are challenging for outside investors to enter.

What countries have sovereign wealth funds?

Some 86 countries are home to 206 sovereign wealth funds, according to Lopez at Global SWF.

The world’s biggest sovereign wealth fund is Norway’s Norges Bank Investment Management. With $1.74 trillion in assets, it’s a classic example of a rainy-day fund that was first seeded by oil and gas revenues.

The 10 Largest Sovereign Wealth Funds (Global SWF)

Singapore’s state-owned Temasek Holdings is an example of the second type (though it objects to being labeled a sovereign wealth fund). What started as a collection of ports, post offices and other typical government holdings in 1974 has become a diversified collection of assets with a net portfolio value of $288 billion as of March 31, 2024.

And the Indonesia Investment Authority, which has helped facilitate and manage investments from abroad, is an example of the third type. So was Malaysia’s 1MDB, which ended in scandal when billions of dollars raised from bond sales were siphoned off.

Why does Trump want to create one for the US?

That’s not clear because it’s uncertain which type of fund Trump has in mind.

When he floated the idea in September during an address at the Economic Club of New York, it involved funneling money from tariffs into an investment vehicle. On Feb. 3, when he signed an executive order calling for the creation of the fund, he said the US would soon “have one of the biggest funds.” Those comments point to a rainy-day fund. The money could be called upon in times of crisis. Many countries used such funds to help pay for emergency measures when Covid-19 broke out.

Comments from Treasury Secretary Scott Bessent on Feb. 3, however, suggested that the administration would set up the second type of fund, which could sell down or essentially mortgage government holdings. Bessent said the US would “monetize the asset side of the US balance sheet for the American people.” The fund, he said, would be a “combination of liquid assets, assets we have in this country.”

There were still other indications that the fund could be the third type. Trump has already specified the sectors — and even one of the companies — he’d want the fund to invest in before it’s raised a single dollar. Initially he said it could invest in manufacturing, defense and medical research.

Later he said it could be used to facilitate the government’s purchase of TikTok, which faces a nationwide ban unless its divests its US operations from its China-based parent company. Also, Trump advisers say the US International Development Finance Corp. could be used as the vehicle to mobilize outside money.

The executive order directed Bessent and Commerce Secretary-designate Howard Lutnick to create a plan within 90 days and a fund within 12 months.

How have sovereign wealth funds performed?

That depends on how you define “performance.” For returns, the New Zealand Super Fund is one of the world’s best. It generated a 16% return in 2024, while Norway’s wealth fund earned a 13% return. Both would have been trounced by an approach that simply tracked the US S&P 500 share index, which grew by 23%. As savings funds, however, sovereign wealth funds often prioritize stability. So having lower volatility and above-inflation gains is more important than straight-line growth.

And if the goal is less tangible — for instance, if it’s enabling “the economic development and diversification of the Saudi economy,” part of the mission of Saudi Arabia’s $925 billion Public Investment Fund — then success is whatever your boss (in this case, the kingdom’s de facto ruler, Prince Mohammed bin Salman) decides it is.

Experts generally agree that the most successful funds have one thing in common: Politicians stay out of the way.

“The most successful funds in the world, like the ones in Australia and New Zealand, have checks and balances on what they call arms-length independence from politicians,” said Global SWF’s Lopez.

Does a sovereign wealth fund make sense for the US?

Experts say that depends on what Trump is trying to achieve by creating one.

“Sovereign wealth funds are designed to tackle particular problems, and the governance of the fund and the nature of investments all go toward that particular problem,” said professor Paul Rose, dean of Case Western Reserve University’s School of Law. Rose, who has studied and advised on such funds for much of his career, said most signs suggest Trump is leaning toward the third type — a strategic investment fund.

If the problem is a lack of national infrastructure, a sovereign wealth fund might not be the best solution. US states and municipalities are already experienced in implementing public-private partnerships or tax concessions to encourage building, and similar measures could be used instead, said Rose.

Lopez was skeptical that a US fund could raise the money to buy TikTok ahead of its impending deal deadline, or that it would even be the right investment vehicle. “If you look at federal assets, actually there are not too many, relatively speaking,” he said. And if a fund were put together with the assets of, say, train system operator Amtrak and the US Postal Service, that “probably doesn’t align well with buying a multi-billion dollar stake in TikTok,” he added.

What are the risks?

The US Department of Justice labeled Malaysia’s 1MDB scandal the “largest kleptocracy case to date.” Other examples of malpractice have been found in the sovereign wealth funds of Angola, Libya and Equatorial Guinea.

The size of the funds, the opportunity to commit fraud and the inherent lack of scrutiny on most sovereign wealth funds make them inherently risky vehicles. They create “significant challenges to avoiding an environment for fraud” despite the potential benefits, according to research by the American University of Sharjah and Cleveland State University published last year.

“Financially, the risk is poor investment decisions, poor returns for the fund and loss of revenues through corruption,” warned Rose. “Politically, the risks are that the fund would lose legitimacy, not just among counterparties but also with the American people.”

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