A US sovereign wealth fund? A confused solution to an undefined problem

The Trump administration has called for the establishment of a US sovereign wealth fund (SWF) (White House 2025) by early 2026. The president also suggested that TikTok would make an attractive investment target for such a fund. He directed the secretaries of the Treasury and Commerce Departments working with the director of the Office of Management and Budget to deliver a plan for a US SWF within 90 days. Information released so far suggests the team has a long way to go to articulate a convincing, comprehensive, and credible project proposal. The United States needs more public investment, but an SWF is not the best way to achieve it.

A state-owned investment fund can step in where markets fail. In a country with a small domestic financial market, such a fund could seek higher returns by investing abroad, using the earnings to fund domestic priorities. In a country with deep and sophisticated financial markets, such a fund could support important policy objectives that private markets could not fund on their own, for example, managing risks inherent in global value chains, responding to climate change, or backstopping government pensions.

However, to be effective, any state-owned investment vehicle must have a focused mandate and a highly transparent and accountable governance structure. Experience with SWFs around the world reveals many that lack such high-quality structures. The administration’s statements to date are silent on SWF governance. Without robust governance, a US SWF is more likely to divert funds from one area to another and to crowd out, not mobilize, new private investments. It risks large-scale distortions and capture by special interests and could well increase US public debt.

What are sovereign wealth funds and how are they funded?

SWFs are state-owned funds that invest, usually at longer term, fiscal resources to finance future expenditures, be it for economic stabilization, saving for future generations, or supporting a country’s economic transformation.

The most familiar type of SWF uses export revenues from nonrenewable natural resources to invest largely outside the home country. Underground wealth is converted into above-ground wealth to support the economy over the long term. Another common type of SWF is a holding company for state-owned properties, including shares in operating companies, and financial and physical assets. A few countries raise funds, domestically or abroad, to promote economic and social development at home, using so-called sovereign investment funds (SIFs) (World Bank 2022). Some countries have had SWFs for decades; others are just a few years old. Some US states have SWFs funded by revenues from natural resource extraction.[1] Thus far, it is not clear what type of SWF President Trump and his advisers have in mind. Public statements to date could fit any or none of the established funding and investment models.

SWFs and the global economy

With the increase in the number and scale of SWFs in the early 2000s, concerns arose about their foreign investments: Were their investments going to be motivated by commercial or political interests, would the SWFs give rise to unhealthy intrusion of political actors in economic matters or state actors in competitive markets, and more broadly would their governance structure and management be transparent and accountable to both the citizens of the countries that owned them and of the countries in which they invested? These concerns took center stage in international economic debates (Gelpern 2011; Truman 2007 and 2010).

To address these concerns, the International Monetary Fund, some of the largest SWFs at the time, and host countries to SWF investments, notably including the United States, formulated a set of best practices that became known as the Santiago Principles (Das, Mazarei, and Stuart, 2010; IWG 2008). These principles reflected a broad-based consensus on the appropriate structure, governance, transparency and accountability, and behavior of SWFs. The intention was to create clear and measurable indicators of the performance of SWFs in these areas.[2]

The establishment of the Santiago Principles and the developments since then, importantly including the financial and economic crisis of 2007–09, helped allay—but not eliminate—many concerns about SWFs. SWFs were an important source of financing for crisis-stricken markets in the United States and Europe. Investment demand combined with the emergence of consensus norms and standards for SWF conduct, and measurable progress towards compliance by many SWFs, reduced concerns about political influence and market distortions. Scare stories disappeared from front pages.

Should the United States now establish an SWF, these and other concerns about SWF management and governance are bound to come back and are likely to become major challenges.

What are the possible benefits of a US SWF?

The administration has yet to explain what problem a US SWF would solve or how it intends to use its SWF—except for perhaps purchasing a part of TikTok. The White House Fact Sheet indicates that the purpose of the SWF will be to raise the rate of return on federal assets or use those assets to achieve strategic goals, which could include investments to lower the risks to global value chains that the United States relies on. This sounds like an industrial policy mandate, but the details are scarce.

A state-run fund that could raise rates of return on state-owned assets looks like a good idea in the abstract. But given the depth and sophistication of the US financial system, it seems implausible that such a fund could outperform private investors—the unstated premise of the initiative—unless the government uses its size to extract uncompetitive returns. This would distort the market, crowd out private investment, and raise the cost of capital for everyone. This premise also flies in the face of the administration’s commitment to free markets and market competition.

A state-run fund could also be useful if its investments help overcome a market failure. For example, this could be the case if the government invests in the production of goods and services that the private sector would not undertake because of their size, or if the social rates of return on those investments were higher than the private returns. Examples include some defense industries, transportation infrastructure, and the production of critical minerals needed for the transition to clean energy. These activities have higher social rates of return than other investments but not higher financial returns.

How could a US SWF be funded?

In principle, a US SWF could be funded from: (1) tax revenues and tariffs,[3] (2) market borrowing by the SWF, (3) the transfer of existing government assets, or a combination of these sources.

The first challenge for the funding model is that the US government is running a large budget deficit. Congress’s stated intent to renew the 2017 tax reduction legislation suggests that even in the most optimistic scenario, excess tax revenues to fund a SWF would take time to materialize. Given the unsettled state of the administration’s trade and tariff policies, the amounts that can be raised from tariffs are hard to predict.

Second, any funds that the SWF would raise from market borrowing would be on top of the amounts needed to finance the budget deficit, thereby increasing the consolidated debt of the federal government (that is the debt of the US Treasury and the SWF), raising interest rates for everyone, crowding out private investment, and endangering the sustainability of the US public debt.

Third is a question about the extent to which existing US assets will be mobilized for the SWF. The White House Fact Sheet states that the federal government directly holds $5.7 trillion in assets that could be used to capitalize the SWF.[4] The sum is higher if reserves of natural resources are included. Will those assets be sold, leased, or used as collateral for new borrowing? Here, governance concerns as well as concerns about valuation, pricing, and arm’s length transaction terms loom large.

Governance—Who controls, who benefits, who knows?

The international experience that led to the development of the Santiago Principles suggests that governance would be a key concern with a US SWF, regardless of its funding and investment mandate. Governance would have implications for everyday Americans, countries around the world, and global market participants alike. SWFs are a governance challenge because they necessarily combine public policy and market objectives, yet policy and market imperatives often point in opposite directions.

What would be the rules governing its fund? Who will manage it, and how? Will there be clear criteria for choosing its managers and oversight body(ies)? What rules will be put in place to ensure its operational independence? To whom would it be accountable—and how?

Without robust governance, including regular credible audits and public information disclosure, an SWF poses a considerable risk of poor and overly politicized investment decisions, capture by vested interests, and corruption, leading to less foreign and domestic investment in the United States and slower growth. Moreover, if a highly visible US SWF has no clear governance rules and fails to abide by international norms, earlier global understandings such as the Santiago Principles could unravel, weakening confidence in global capital markets.

Conclusion

The United States needs more investment, but it is unlikely that an SWF is the best mechanism to achieve this objective. The purpose and mandate of any proposed US SWF are not at all clear; its sources of funding and financing are unspecified, along with their relationship to the US government budget. The way in which the assets will be managed by the SWF has not been discussed, and the governance structure of the fund is up for grabs. Without much greater clarity and a broadly shared understanding on these issues, a US SWF risks becoming a misplaced fiscal gimmick and an inefficient and potentially corrupt diversion of public resources that could do long-term damage to the US and global economy and financial markets.

References

Das, Udaibir S., Adnan Mazarei, and Allison Stuart. 2010. Sovereign Wealth Funds and the Santiago Principles, in Udaibir S. Das, Adnan Mazarei, and Han van der Hoorn, eds., The Economics of Sovereign Wealth Funds, Issues for Policymakers. International Monetary Fund.

Department of the Treasury. 2025. Financial Report of the United States Government.

Gelpern, Anna. 2011. Sovereignty, Accountability, and the Wealth Fund Governance Conundrum. Asian Journal of International Law 1, no. 1. 

IWG (International Working Group of Sovereign Wealth Funds). 2008. Sovereign Wealth Funds Generally Accepted Principles and Practices, “Santiago Principles.” 

Maire, Julien, Adnan Mazarei, and Edwin M. Truman. 2021. Sovereign Wealth Funds are Growing More Slowly, and Governance Issues Remain. Peterson Institute for International Economics Working Paper 21-3.

The White House. 2025. Fact Sheet: President Donald J. Trump Orders Plan for United States Sovereign Wealth Fund.

Truman, Edwin. M. 2007. Sovereign Wealth Funds: The Need for Greater Transparency and Accountability. Peterson Institute for International Economics Policy Brief07-6.

Truman, Edwin. M. 2008. A Blueprint for Sovereign Wealth Fund Best Practices. Peterson Institute for International Economics Policy Brief08-3.

Truman, Edwin. M. 2010. Sovereign Wealth Funds: Threat or Salvation? Peterson Institute for International Economics.

World Bank. 2022. Strategic Investment Funds: Establishment and Operations. Washington, DC.

Notes

1. Many countries and US states also have government pension funds, which are not SWFs but which raise similar issues.

2. Edwin M. Truman (2007 and 2008) began publishing a scorecard of the SWFs performance in these areas. The latest scorecard is Maire, Mazarei, and Truman (2021).

3. The Santiago Principles advocated clear guidelines for withdrawals from the budget and the transfer of assets to SWFs, as well as for the SWF to contribute to budgets.

4. The main assets are loans receivable (net); property, plant, and equipment (net); and cash and other monetary assets (Department of the Treasury 2025). International assets are more than $200 billion, including about $170 billion in IMF Special Drawing Rights and $11 billion in gold valued at the official price of $42.22 per ounce established by Congress in 1972.