T he United States may soon join countries like Norway, Kuwait, and Mongolia in establishing a national reserve to invest in strategic projects. On February 3, 2025, President Donald Trump signed an executive order calling for the creation of a U.S. sovereign wealth fund.
This initiative, while gaining traction now, is not entirely new. In September 2024, both the Trump team and President Joe Biden’s Treasury Department had floated the idea. At the time, many dismissed it as far-fetched. However, with momentum building, it is worth considering what a U.S. sovereign wealth fund might look like.
What is a Sovereign Wealth Fund?
Sovereign wealth funds (SWFs) are government-owned investment pools, typically amassed through years of resource sales, traded goods, state-owned enterprises, and land-use fees. Their objectives vary, including stabilizing national finances, funding social programs, securing future generations, and managing state-owned corporations.
Most sovereign wealth funds diversify their investments across various sectors and geographic regions. Some, such as Saudi Arabia’s Public Investment Fund, also support national development goals, including investments in sports and entertainment.
Norway’s SWF, estimated to be worth $1.7 trillion, exemplifies the potential scale of such funds. While sovereign wealth funds are often associated with resource-rich smaller nations like Kuwait and Qatar, many exist at more modest scales relative to GDP.
The History of Sovereign Wealth Funds
Sovereign wealth funds have existed for decades, with the modern era tracing back to the early 1950s and the Kuwait Investment Board. However, some government investment funds in the U.S. predate that, such as the Texas Permanent School Fund, established in 1854.
Several U.S. states, including Alaska, New Mexico, and Wyoming, already operate investment funds labeled as sovereign wealth funds. Although these are state-level initiatives, they illustrate how such mechanisms function within the U.S. economy.
SWFs often invest internationally to mitigate domestic inflation. The U.S. itself has benefited from foreign sovereign wealth fund investments, given its robust institutions and deep financial markets. However, in recent years, countries like Ireland, India, and Indonesia have increasingly directed sovereign wealth funds toward domestic strategic objectives, aiming to mobilize foreign capital for national development.
Key Questions Surrounding a U.S. Sovereign Wealth Fund
If the U.S. establishes a sovereign wealth fund, several critical questions arise:
How will it be funded? Will it derive revenue from taxes, Treasury bonds, budget allocations, or tariffs?
Where will it invest? Should it focus on global markets, domestic infrastructure, or even strengthening the Social Security system?
What will its strategic mandate be? Will it aim to reduce the budget and trade deficits, enhance national security, or support energy and climate initiatives?
How will it be governed? Will it operate transparently, free from political interference, with a structure that ensures investments are evaluated on commercial merit?
Sovereign wealth funds have a mixed history. Some, like Norway’s, have been highly successful, while others, such as Malaysia’s 1MDB, have been embroiled in corruption scandals. Governance failures, political interference, and lack of transparency have doomed some funds, making strong oversight essential.
Potential Models for a U.S. SWF
The U.S. has previously played a role in shaping sovereign wealth fund governance. During the 2008 financial crisis, the Bush administration helped define the Santiago Principles—a set of 24 governance precepts aimed at ensuring transparency and accountability in sovereign wealth funds.
To succeed, a U.S. SWF must be built on solid governance principles. It should be free from political influence and managed with transparency and accountability. One possible model is a private equity-style structure, where the U.S. government serves as a general partner alongside institutional investors, including other sovereign wealth funds. India’s National Investment and Infrastructure Fund operates on this model, attracting external investment while requiring minimal initial government capital.
The Challenges Ahead
The greatest challenge remains funding. Increased taxes are politically unfeasible, Treasury bond issuances could inflate national debt, and budget allocations are constrained by existing deficits. Trump has suggested using tariffs, but their effectiveness and long-term feasibility remain uncertain.
A partnership-driven approach, where the U.S. government collaborates with institutional investors under a private equity model, may offer a viable solution. However, the scale, complexity, and risks of such an endeavor in the U.S. far exceed those in smaller nations.
While the idea of a U.S. sovereign wealth fund is now on the table, ensuring that it effectively enhances long-term national prosperity remains a formidable challenge.
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