Donald Trump has signed an executive order directing the US Treasury and Commerce Departments to establish a sovereign wealth fund. Treasury Secretary Scott Bescent and Commerce Secretary candidate Howard Luttonick will lead the effort.
“We have great potential,” Trump said Monday while signing orders from an oval office. “In a short period of time, I think we have one of the biggest funds.”
What is a Sovereign Wealth Fund? What does it do?
Sovereign wealth funds are state-owned investment vehicles. Most can act as investment accounts, development tools, or as a combination of the two. They are designed to become nest eggs, allowing current money to be deployed in a way that will benefit future generations.
Unlike pension funds where people withdraw money for their spending needs, SWFs are supposed to invest in the collective benefits of the nation. However, SWFs can often invest in financial products and also purchase investments in companies.
According to the Sovereign Wealth Fund’s International Forum, there are over 90 such funds around the world, managing more than $800 million in assets. Some of the well-known examples include the Saudi Arabia Public Investment Fund, the China Investment Corporation, and the Norwegian Government Pension Fund.
How are wealth funds funded?
Typically, some or all of the country’s budget surplus is passed to the SWF, which can be used for new investments.
Many funds are established by countries with strong commodity export industries, and revenues from the sale of oil, natural gas, metals and minerals by state-owned enterprises often lie behind SWF. Approximately 60% of the funds are funded by revenue from natural resources, according to the IFSWF.
Trump on Monday gave little in detail how the US fund will run or how it will be funded. Treasury Secretary Scott Bescent told reporters that there are plans to monetize assets currently owned by the US government “for the sake of Americans.” The president has previously said that income from tariffs on US imports can form the basis for the asset fund.
Why did the US have no wealth funds before?
Sovereign wealth funds generally exist in countries that earn money from large foreign exchange reserves such as China and other products such as Norway and Saudi Arabia. However, the US has consistently implemented budget deficits in recent years.
In fact, there are US states where there are less wealth funding, typically funded by goods and land. The largest is the Alaska Permanent Fund, which started in 1976, currently manages approximately $82 billion.
But the size of the American private investment sector above Wall Street is like a variety of investment managers and private equity companies managing a large capital pool. This reduces the lack of political will, both the need and availability of capital for the existence of sovereign wealth funds.
Bescent said the US sovereign wealth fund will be established in the next 12 months. While competing on the September election campaign trail, Trump proposed to establish a fund to fund “great national efforts” including infrastructure projects such as highways and airports, manufacturing and medical research. did.
Trump also suggested that the fund could be used to maintain Tiktok operations in the US without providing details. Tiktok is currently operating for extensions where Trump extends forced sales or shutdown deadlines.
How big is the American sovereign wealth fund?
Trump did not give the initial size or target amount for the US Sovereign Wealth Fund. But when talking about the subject in September, he said that the American SWF should either approach or exceed 2tn.
Currently, such funds are the Norwegian Government Pension Fund Global with assets of 1.74 tons, and later, China Investment Corporation has assets with 1.33TN, according to data provider Sovereign Wealth Fund Institute.
Abu Dhabi, Kuwait, Saudi Arabia and Singapore are among the countries with prominent sovereign wealth funds, with assets ranging from $81 billion to $106 million, the institute said.
