On 3 February, President Donald Trump signed an executive order directing Treasury Secretary Scott Bessent and Commerce Secretary-designate Howard Lutnick to develop a plan for a US sovereign wealth fund within 90 days. The idea is ambitious, but is it a good one? Would it even qualify as a SWF?
Globally, well-regarded SWFs have clear mandates and specific funding mechanisms. The US proposal, as presented, lacks these elements, making it an unusual potential entrant in the SWF landscape.
Understanding this distinction is critical in evaluating its feasibility and implications.
What defines a sovereign wealth fund?
Governments have traditionally established SWFs to manage surplus wealth accumulated from excess revenues. For instance, the Norwegian and the Gulf States funds are financed by oil and gas exports, ensuring that a consistent stream of surplus revenues backs their funds. Singapore’s Government Investment Corporation has prudently managed the country’s foreign reserves, making strategic, long-term investments that have contributed to Singapore’s position as a global financial hub. Meanwhile, the China Investment Corporation was seeded with surplus foreign exchange reserves. Asset allocation activities undertaken by these SWFs keep economic policy goals of wealth preservation, stabilisation and funding future liabilities in view.
The US, however, lacks these traditional funding sources. Unlike commodity-exporting nations, it does not directly control energy production revenues. Its fiscal position is also starkly different, with a budget deficit of 7% of gross domestic product and public debt standing at approximately 100% of GDP. The US has limited foreign exchange reserves. Without the foundational financial pillars that have supported other traditional SWFs, the US proposal does not appear to fit the standard model.
Instead, it purportedly attempts to create a US investment vehicle reliant on asset monetisation and/or debt issuance and undertaking strategic state-directed or policy-driven acquisitions. This diverges from the principles that underpin the world’s leading SWFs, as defined by the International Monetary Fund and expanded upon by the International Forum for Sovereign Wealth Funds.
How it gets funded will be a key consideration
Several proposals have emerged regarding how the US could finance its version of a SWF. Some suggest the government could monetise its balance sheet by liquidating federal assets. The US holds federal lands and over 260m ounces of gold, valued at approximately $750bn, which could theoretically be sold to generate funding. Another potential source includes the 200,000 seized bitcoins currently held by the government.
A more contentious proposal involves issuing debt to fund investments, effectively turning the fund into a hedge-fund-like structure. However, this raises serious concerns about risk management, as traditional SWFs are designed to operate on accumulated national wealth rather than leveraging debt to enter speculative financial markets. The idea of a US SWF financed through borrowing contradicts the essence of ‘sovereign wealth,’ making it more akin to a sovereign investment fund with short-term fiscal considerations rather than a long-term wealth-preserving vehicle.
Governance will be another pressing concern
Beyond financing, the governance of such an entity poses critical questions that have yet to receive adequate attention. Would Congress need to authorise the fund, like the Strategic Petroleum Reserve? If so, what legal framework would ensure its operational independence and protect it from political influence?
Additionally, what specific objectives would this fund serve? Would it be designed to counter China’s dominance in critical minerals or fund emerging technologies? The answers to these questions are crucial in determining whether the proposal serves a legitimate economic function or merely represents a politically motivated initiative.
Another primary concern is transparency and oversight. Leading SWFs operate with independent investment mandates in global good practices, avoiding politically driven and short-term policy driven decisions. If short-term political interests influenced the US fund, it could undermine investor confidence and weaken the US fund’s long-term sustainability. The lack of a clear governance structure would create uncertainty about how the fund would be managed, raising concerns about accountability and potential misuse, such as cronyism or an ad hoc slush fund used for fiscal management.
Lessons from good global practices
The IFSWF, which is globally responsible for maintaining and adhering to the established Santiago Principles – a set of 24 voluntary guidelines for effective management designed by traditional SWFs – has frequently stressed the necessity of a clear legal framework, well-defined objectives, robust governance structures and transparent investment strategies. Countries with leading SWFs have successfully institutionalised these good practices, ensuring their funds remain insulated from political influence at regular times and effectively serve their intended macroeconomic and investment purposes.
It is unclear at this stage the extent to which the US proposal will also adhere to these good practices. Without a clear legal mandate and a well-defined governance framework, a US SWF risks becoming a politically driven investment vehicle rather than a fiscally and economically grounded institution with a defined role in the US economy. Moreover, its reliance on debt or asset liquidation to finance investments deviates from the traditional model, further complicating its legitimacy in global capital markets.
By contrast, the UK is creating a National Wealth Fund rather than a traditional SWF to support longer-term domestic investment. Both the UK’s NWF and the US proposal resemble sovereign investment funds rather than intergenerational savings vehicles. This distinction is vital because a sovereign investment fund is typically geared towards specific economic or strategic goals, whereas a traditional SWF exists to preserve national wealth over generations. If the US fund follows the UK model, it should be labelled as such to avoid confusion and misaligned expectations.
The road ahead: clarifying the US proposal.
The idea of a US SWF is appealing and headline-grabbing. But Bessent and Lutnick must clarify key aspects of this initiative. What problem is the fund trying to solve? If the problem is so significant, why shouldn’t it be directly tackled through the budget and existing apparatus?
A fund’s intended mandate must be clearly defined – whether the goal is to invest in economic growth, national security speculative investments or statecraft. Establishing a robust governance framework with precise oversight will ensure transparency and fiscal accountability. Until these aspects are transparently addressed, the US initiative may take on the appearance of industrial policy or governmental picking of winners and losers.
The US must ensure that any proposed investment fund aligns with international best practices. Bessent and Lutnick would be well advised to study the Santiago Principles and some of the well-established traditional funds – including the Alaskan Permanent Fund – and emulate to the maximum extent possible their high-quality practices.
Udaibir Das is a senior adviser of the International Forum for Sovereign Wealth Funds. Mark Sobel is US Chair of OMFIF.
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