On February 3rd, 2025 the US President signed an executive order requiring the administration to bring him a plan to create a new sovereign wealth fund (SWF) within 90 days. Hence, we will soon see what this new big fund is and what it does. The aim is to build a government-driven fund that competes, at least in terms of size, with the massive equivalent funds established in the Middle East, Norway and Asia. The ultimate purpose and content of the fund is still open.
Guesses of the fund
However, based on examples around the world and the President’s order, we may give free rein to some speculation. Here is a short list of guesses regarding the mission and model of the new fund.
Most likely, the fund will be created by transferring a significant amount of wealth from the current federal assets to the new fund. At present, the federal government already holds USD 5,700 billion in assets, some of which could provide the seed capital.
Additional revenues would be accrued from contributions. If the United States imposes tariffs on imports, the revenue stream will provide additional financing for the fund. The plan is hardly to swell the federal coffers or channel the new revenue stream to new government programmes or to repay the existing national debt. The additional income from tariffs and other sources may be diverted to the new fund. Some states have already been collecting levies on raw material and mining incomes. Examples of such large state funds include the Alaska Permanent Fund and the Wyoming Mineral Trust Fund.
The primary financial objective of the sovereign fund is to improve the return on existing assets, with the goal of exceeding the cost of federal debt. This is designed to justify the existence of the fund and sustain the value of the assets over time. The financial target will probably be to generate returns that surpass this minimum level by some margin.
What the money will be invested in is a more intricate question. Traditionally, the US federal government has refrained from competing with the private sector over investments while purchasing many of the public services from private providers. For example, numerous highways are in private hands and most major defence companies are listed on the stock exchange. One exception to this private sector approach is the housing finance entities that the federal government operates to provide access to home loans. The Government Pension Fund of Norway, while investing globally follows very closely its benchmark indexes, nevertheless seeks to outperform them to earn healthy returns. For the US sovereign wealth fund such an investment strategy would be far too modest because the objectives would remain purely financial.
Most likely the United States aims higher. The problem is the extent to which the new fund will be allowed to compete with the private sector. If the fund is steered in a more strategic direction, one could imagine the fund being linked to commodities, defence, infrastructure and land, for example. If we take the speculations one step further and consider them in view of the President’s recent statements, these operations could be carried out outside the United States, which would mean less competition with domestic businesses and even give a boost to US companies in their efforts to conquer the world and new markets.
Judging by headlines, Middle East funds appear to be interested in European football clubs, whereas China wants ports and raw materials. The easy guess is that President Trump is more keen on strategic projects than soccer clubs.
Challenges of transparency
In the United States, there is a strong tradition of transparency with public investors. Not infrequently, the proceedings at board meetings can be followed live or watched on the internet. This will impose constraints on the new fund's activities. Additionally, in the rules-based world (which tends to be less respected today), there has been a tendency to increase the transparency of sovereign wealth funds. The standards for sound governance are stated in the Santiago Principles of 2008. At that time, this was done in an effort to learn more about the secretive Middle East and Asian funds. It will be interesting to see if the United States will comply with these principles.
Conclusions
The US sovereign fund will underpin government finances and help control national debt. Many people predict that US federal debt is on the wrong track. Even a debt crisis is foreseen in a couple of years now that the debt-to-GDP ratio has exceeded 100 percent. The sovereign wealth fund will serve as a defence mechanism in the event of a debt crisis.
Since everything is big in America, it is probably a foregone conclusion that the new fund will be big too. Knowing how unpredictable President Trump can be, we may assume that the foregoing speculations are too conservative. So, if you wish to make an alternative prediction, it is probably advisable to venture beyond the ordinary.
Writer is VER's CEO Timo Löyttyniemi
