On February 3rd, President Donald Trump signed an executive order directing Treasury Secretary Scott Bessent and Commerce Secretary-designate Howard Lutnick to create a plan for a U.S. sovereign wealth fund (SWF) within 90 days. While the concept is ambitious, questions loom over whether it’s truly a necessary initiative and if it would even qualify as a sovereign wealth fund in its traditional sense.
Globally, successful sovereign wealth funds, like those in Norway and Singapore, follow clear mandates and financing structures. In contrast, the U.S. proposal, as it stands, lacks essential elements such as a defined funding mechanism and objectives, making it an unconventional entry into the SWF landscape. Understanding this distinction is critical when evaluating the proposal’s feasibility and potential implications.
What Defines a Sovereign Wealth Fund?
Sovereign wealth funds are typically established by governments to manage surplus wealth, often derived from excess revenues. Countries such as Norway and Gulf States fund their SWFs through oil and gas exports, while Singapore’s Government Investment Corporation has successfully managed foreign reserves to generate long-term wealth. Similarly, China’s Investment Corporation is supported by foreign exchange reserves. These funds focus on wealth preservation, stabilization, and the funding of future liabilities through diversified investments.
However, the U.S. differs fundamentally. It does not have the same surplus revenues from commodities like oil or gas, and its fiscal position includes a budget deficit of 7% of GDP and public debt around 100% of GDP. Unlike nations that have accumulated reserves, the U.S. lacks the foundational financial pillars necessary to support a traditional SWF, raising doubts about whether the proposal would truly align with the principles of established sovereign wealth funds.
Funding and Risk Management Concerns
Several proposals have surfaced on how the U.S. could fund its SWF. One idea is for the government to liquidate federal assets, such as the 260 million ounces of gold or federal lands, potentially generating substantial funds. Another option includes selling off the government’s seized bitcoins, which could also contribute to financing the fund.
More controversially, some suggest issuing debt to fund the SWF, turning it into a hedge-fund-like vehicle. This approach, however, raises significant concerns about risk management. Traditional SWFs operate on national wealth accumulated over time, rather than on borrowed funds. A U.S. SWF funded by debt would stray from the core concept of “sovereign wealth,” making it resemble a short-term fiscal tool rather than a long-term wealth-preserving fund.
Governance Issues and Political Influence
Governance of the proposed fund also presents a major challenge. Would Congress need to approve it, as with the Strategic Petroleum Reserve? What legal framework would ensure the fund operates independently from political influence? These questions remain unanswered, but they are crucial to determine whether the fund can maintain its integrity and transparency.
The specific goals of the fund also remain unclear. Would it be focused on competing with China in key industries, like critical minerals and emerging technologies, or would it serve a broader economic purpose? Clear objectives are necessary to avoid a fund driven by short-term political motivations, which could undermine its long-term sustainability.
Transparency and oversight are central to the success of any SWF. Leading global funds operate independently from political pressures and are guided by long-term investment strategies. Without sufficient governance, a U.S. SWF could be vulnerable to political influence, leading to poor investment decisions, cronyism, or misuse of funds for political gain.
Global Best Practices and the U.S. Proposal’s Uncertain Path
The International Forum for Sovereign Wealth Funds (IFSWF) maintains the Santiago Principles, a set of guidelines promoting transparency, strong governance, and clear mandates. Established SWFs like Norway’s and Singapore’s have institutionalized these practices, insulating them from political interference while achieving their long-term investment goals.
At this stage, it is uncertain whether the U.S. proposal will follow these best practices. Without a clear legal framework and well-defined governance structure, the U.S. SWF risks becoming a politically driven initiative rather than a stable, long-term investment vehicle. The reliance on asset liquidation or debt issuance only complicates its legitimacy, positioning it as a sovereign investment fund with short-term goals rather than a true sovereign wealth fund with long-term wealth preservation objectives.
By contrast, the U.K. is creating a National Wealth Fund (NWF) rather than a traditional SWF to support long-term domestic investment. Both the U.K.’s NWF and the U.S. proposal share similarities with sovereign investment funds, but they differ from traditional SWFs in their goals and strategies. The U.S. would benefit from clarifying its intentions and ensuring that any new investment vehicle aligns with established best practices to prevent misalignment and confusion in global markets.
The Road Ahead: Clarifying the U.S. Proposal
While the U.S. sovereign wealth fund idea is appealing in theory, Bessent and Lutnick must address key concerns before moving forward. What specific problem is the fund intended to solve? If the issue is significant, why not address it directly through the federal budget and existing structures?
It is crucial for the proposed fund to have a clear mandate, whether for economic growth, national security, or strategic investments. A robust governance framework, transparency, and fiscal accountability will be necessary to ensure the fund’s effectiveness. Until these issues are fully addressed, the U.S. initiative risks becoming a politically motivated project rather than a legitimate, long-term investment vehicle.
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