A sovereign wealth fund is a state-owned investment fund that invests in various types of assets, from real estate to stocks and bonds. Historically, this has never been done by the US, but has been done by Norway, Kuwait, and Mongolia. Some argue that it’s beneficial to put some of the national reserve away in this fund for strategic purposes.
This may be coming to the US in the coming future, as on February 3rd President Donald Trump called for the creation of a US sovereign wealth fund. The idea itself is not new, even in the US. Former President Joe Biden and his administration also were considering creating a sovereign wealth fund. Many aren’t confident in this idea, but it has been gaining interest.
What is a Sovereign Wealth Fund?
A sovereign wealth fund is simply government savings that are used to benefit the government. Some governments will use it to stabilizing finances, others use it to fund education programs, or save for managing public companies. These asset are generally diversified, but typically money is invested in a way that aligns with the country’s development goals.
These types of funds aren’t new. Many states such as Alaska, New Mexico, Wyoming, and Texas have all set funds aside as a sovereign wealth fund. In the past few years, the total number of these types of funds have actually increased significantly. While they are getting more popular, these funds aren’t perfect. Malaysia put together a fund called the 1MDB, which ended by being usurped for political and personal gain. Venezuela also tried putting together a sovereign wealth fund, but it closed due to a lack of funds.
What Would A US National Fund Look Like?
President Trump has suggested tariff payments could be used to financially support the sovereign wealth fund. However, many question the effectiveness of this since tariffs are questionable since Trump will negotiate with various countries. Other experts claim that the fund should be self-financed so as to avoid burdening the public with greater taxes and avoid more government borrowing.
Experts also suggest that in order to succeed, the fund should invest primarily if not exclusively internationally. While this could offer higher potential returns and avoid the risk of being involved in domestic decisions, others question this approach since Trump is riding a “America First” wave. Lastly, many agree the the fund should be shielded from any political influence. This would require an independent board to oversee the fund.
While there certainly are pros and cons to the this idea, only time will tell if Trump can actually get this idea to go through. What do you think of this fund? Would it be beneficial to the US in the long run, or would it be influenced by political and/or personal motives? Let us know in the comments.
