Despite political tensions between the Republican and Democratic parties in the United States, both parties appear to be interested in the idea of creating a new sovereign wealth fund.
The fund aims to advance U.S. strategic interests, such as advanced technology and energy security, amid growing competition with China.
According to a report from the Wall Street Journal, White House officials have been working on designing the fund for several months, while former President Donald Trump has made a public call for the creation of a sovereign wealth fund to invest in infrastructure and medical research.
Why a sovereign fund?
Sovereign funds are investment vehicles owned by national governments and used to invest in global markets, including private equity, private debt and infrastructure.
According to data from the Global SWF platform, which is concerned with such funds, global sovereign funds manage approximately $12.4 trillion, and 59% of this money comes from revenues from natural resources, such as oil.
However, the United States, which runs large budget and trade deficits, does not typically have the conditions that would prompt other countries to create such funds, according to the platform.
Fund financing is a big challenge
Trump has suggested that the fund would be financed by revenue from the tariffs he plans to impose, but the money is also earmarked to fund other tax cuts.
The White House is considering several potential funding sources, including issuing debt or allocating specific revenues to the fund, but those discussions are still in their early stages.
Trump did not provide many details about the proposed fund, but said it would invest in infrastructure, health care and food production.
In contrast, the White House is studying models for other sovereign wealth funds, such as those in India, Ireland and Singapore. It is also looking at past American experiences, such as the Reconstruction Finance Corporation, which financed banks and public projects in the 1930s.
China dominates critical minerals like lithium, posing a threat to US national security
The sovereign fund being considered by the White House is expected to invest in sectors that private equity might avoid because of high risk or a long time horizon.
For example, China dominates critical minerals like lithium, which poses a threat to U.S. national security. Officials believe the sovereign wealth fund could support companies that need to expand to compete with China, through loan guarantees or bridge financing.
Will this fund ever be a reality?
Global SWF founder Diego Lopez said a U.S. sovereign wealth fund was “unlikely.” He noted that many U.S. natural resources, such as oil and gas, are controlled by states rather than the federal government.
In fact, the United States already has 23 state-level sovereign wealth funds, managing $332 billion in assets, including the Alaska Permanent Fund, which invests oil revenues and manages $78 billion.
Is there a real need for a US sovereign wealth fund?
Some experts are skeptical about the feasibility of creating a new sovereign wealth fund in the United States, according to the Wall Street Journal. There’s no clear reason why the United States would need a new sovereign wealth fund, said Zubayd Ahmed, managing partner at Caravanserai Partners, a consulting firm, as there are already large federal funds dedicated to infrastructure, technology and defense, created under the Inflation Reduction Act and the Chips Act of 2022.
Ahmed noted that creating a sovereign fund might seem politically attractive, but it doesn’t add much since existing funds are already doing the jobs that this new fund might do.
