(Reuters) – President Donald Trump on Monday signed an executive order ordering the U.S. Treasury and Commerce Departments to create a sovereign wealth fund for the United States.
WHAT IS A SOVEREIGN WEALTH FUND?
Sovereign wealth funds are investment vehicles owned by countries. Most act as an investment account, or as a development tool, or a combination of the two. They are designed to be a nest egg, allowing current money to be deployed in a way that benefits future generations.
Unlike pension funds where people withdraw money for their own spending needs, SWFs are supposed to invest for the collective good of a nation.
That could mean things like funding construction of an airport or school. But SWFs also often put money into financial products and buying stakes in companies, which can provide financial benefits well into the future and fund government budgets or social programs.
There are over 90 such funds across the world, managing over $8 trillion in assets, according to the International Forum of Sovereign Wealth Funds.
HOW IS A WEALTH FUND FUNDED?
Typically, some or all of a country’s budget surplus is passed to the SWF, which can then use it for new investments.
However, the United States has consistently run budget deficits in recent years.
Many funds have been set up by countries with strong commodities export industries, and proceeds from oil, natural gas, metals and minerals sales by state-owned companies are often behind SWFs. Around 60% of funds are funded by revenue from natural resources, per the IFSWF.
Trump offered little in the way of detail on Monday about how a U.S. fund would operate or how it would be financed.
Treasury Secretary Scott Bessent told reporters the plan was to monetize assets currently owned by the U.S. government “for the American people.”
The president has also previously said revenue earned from tariffs on U.S. imports could form the basis for a wealth fund.
WHY SET UP A WEALTH FUND NOW?
Bessent said the U.S. sovereign wealth fund would be set up in the next 12 months.
While on the election campaign trail in September, Trump proposed setting up a fund which would finance “great national endeavors,” including infrastructure projects such as highways and airports, manufacturing and medical research.
HOW BIG COULD AMERICA’S SOVEREIGN WEALTH FUND BE?
Trump did not give an initial size or target amount for the U.S. sovereign wealth fund. However, when talking about the subject in September, he said an American SWF should approach, or exceed, $2 trillion.
Currently, the largest such fund is Norway’s Government Pension Fund Global with $1.74 trillion in assets, followed by the China Investment Corporation with $1.33 trillion in assets, according to the Sovereign Wealth Fund Institute, a data provider.
Abu Dhabi, Kuwait, Saudi Arabia, and Singapore are among countries with prominent sovereign wealth funds, with between $801 billion and $1.06 trillion in assets, the institute said.
(Reporting by David French in New York, editing by Deepa Babington)
