THE GLOBE AND MAIL/SOURCE GETTY IMAGE/The Globe and Mail
Those trying to keep abreast of the volcanic eruptions spewing out of Donald Trump’s White House might be forgiven for missing his Feb. 3 executive order and subsequent Oval Office musings about how America could buy TikTok.
Said order directed Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick (who are as Wall Street as they come) to conjure up a made-in-the-USA sovereign wealth fund (SWF), financed by some combination of the federal government’s existing assets and the tariff revenues Trump is so hell-bent on collecting from importers. Such a fund could acquire the giant but contentious social media platform, speculated Trump, adding, with a hint of covetousness, “I think it’s about time that this country had a sovereign wealth fund.”
The U.S., needless to say, is not short on huge and high-profile investment pools, from ETF behemoths like BlackRock to deep-pocketed university endowments, public-sector pension plans and every flavour of hedge fund. But it does not have a national SWF of the sort that has germinated in countries around the world, especially those nations with outsize oil and gas revenues (Norway, the Gulf states) or massive foreign currency surpluses (China, Singapore).
In the past 30 years, the SWF sector has quietly grown to a bewildering size, with an estimated US$13 trillion in assets under management—everything from publicly traded equities and bonds to real estate, infrastructure, private equity and high-profile one-offs, such as a Saudi SWF’s 2021 purchase of Newcastle United FC, and the acquisition of Harrods by Qatar’s SWF in 2010 for £1.5 billion. Norway’s Government Pension Fund Global is the largest, with US$1.7 trillion, followed by two Chinese SWFs and several established by Arab states. There are 183 in all, including a couple dozen maintained by North American states and provinces.
The Trump administration’s foray, however, has raised eyebrows among SWF experts. “The source of the capital is a critical piece, which I don’t see in Trump’s idea,” says Harrie Vredenburg, a professor of strategy and sustainability at the University of Calgary’s Haskayne School of Business. The U.S. government owes US$36 trillion. “Where is the wealth going to come from? Do you really trust the Trump administration to invest in the things that you know the United States ought to be investing in?”
“It’s astonishing how naive it is,” adds Veljko Fotak, an associate professor of finance at the University of Buffalo School of Management. He’s been studying SWFs for 25 years and says the Trump plan “is clearly not very well thought out. If you want my big-picture feeling, I think this is a horrible idea. I’m not going to try to play too much devil’s advocate here.”
SWFs differ from other giant asset pools, like public-sector pension plans, because they don’t have to cover future liabilities, such as payments to retirees. Fotak says they’re sometimes established in less developed countries to prevent excess domestic inflation due to an influx of resource-related wealth, the phenomenon known as the Dutch Disease.
In terms of governance, the state-of-the-art practice is that the managers are insulated from political interference and generally expected to invest outside their own countries, both for stabilization and a means of preventing governments from directing SWF funds to favoured companies or sectors.
The rise of Chinese SWFs, and their propensity to co-invest in state-owned enterprises, has raised concerns about Beijing’s willingness to use its foreign currency reserves to advance geopolitical goals, such as acquisitions of strategically important firms in sectors like energy and critical minerals. But Fotak’s research has shown the Chinese funds have tended to be quite cautious and not inclined to exert their influence by voting their shares.
Forward-looking prudence was the motivating factor when Norway established GPFP in 1990. The Norwegians asked, “What’s going to happen to us when oil runs out?” explains Haskayne professor of finance Yrjo Koskinen. Today, he says, “about 75% of the fund is allocated to equities, and they don’t invest in Norway at all.” Nor do Norway’s governments dip into the fund because doing so requires a parliamentary super-majority. As in all Nordic countries, taxes are high, but Norwegian politicians avoid siphoning off the fund’s income to lower them.
Fotak and other observers assume Trump’s goal is to use a big pool of assets specifically to benefit political allies, much in the way the Russian government in the early 1990s enriched favoured oligarchs by selling off state companies for a pittance. “For a sovereign fund to work in the best interest of people,” he says, “it needs to be insulated from political interference. The Trump administration wants a sovereign fund exactly to have control.”
Norway, it’s worth noting, was inspired in part by Alberta in the 1970s, although there’s a cautionary tale here, too. After the OPEC oil shock in 1973, then-premier Peter Lougheed established the Alberta Heritage Savings Trust Fund to hold and invest oil and gas royalties. “It really was designed as a savings program, an investment arm, and a way to illustrate Alberta’s growing influence in Confederation,” says Duane Bratt, a political scientist at Mount Royal University in Calgary, adding that Lougheed’s Tories also saw it as a responsible way to hedge against a non-renewable resource and a boom-bust economy.
While Lougheed had the political self-discipline to let the fund grow, all of his successors have succumbed to the temptation to use the income it generates to lower taxes. The first draw, by Don Getty, was meant to be a one-time thing but, as Bratt says, “they do it year after year after year after year.” Consequently, the fund—the current balance is about $24 billion—is a lot smaller than it would otherwise be had Alberta politicians exercised the kind of fiscal self-discipline that is the coin of the realm in Norway. “It’s been a wasted opportunity,” he adds.
Coincidentally, Alberta Premier Danielle Smith in late January announced her own SWF plan—to aggressively rebuild the provincial trust over the next 25 years, aiming to push it to $250 billion by 2050. “It is doable,” Bratt says, “but you can’t bind future governments.”
Near-term political unpredictability is what may dog Trump’s SWF, says Douglas Cumming, a financial economist at Florida Atlantic University and editor of a 2017 academic anthology on SWFs. “Tariffs aren’t necessarily going to be there forever,” says Cumming, a Canadian who taught at York University’s Schulich School of Management until 2018. “They might change with election cycles, and so that would concern some people about the longevity of the fund. Typically, investees are looking for more stable investors, so it’s tough to say that we’re going to do a sovereign wealth fund only on the assets generated by tariffs, because who knows what’s going to happen with them.” Fotak adds that tariff revenues from the first Trump administration were actually far lower than predicted.
Nor are SWF returns as robust as Trump might imagine. “We have no evidence of sovereign wealth funds outperforming private-sector investments,” says Fotak. In a 2023 paper published in the Journal of International Business Policy, Cumming and Pedro Monteiro, a University of Scranton business professor, showed that SWFs that take large stakes in private equity, venture capital and real estate limited-partnership funds tend to earn lower-than-average returns. The reason? They wait longer before exiting, often for political or strategic reasons, says Cumming. “On average, it’s not good to have a sovereign wealth fund as one of your limited partners.”
Finally, as with all things Trump, there are the potential conflicts and entanglements. According to investigations published by The New York Times, son-in-law Jared Kushner succeeded in persuading Saudi, UAE and Qatari SWFs to invest US$3 billion in the private equity company he formed in 2021, with few returns to show so far. Will Ivanka’s hubby come looking for more equity from whatever Bessent and Lutnick concoct a year hence? Who knows, but such a scenario—this one involving an SWF fuelled by U.S. government revenues and assets—doesn’t seem especially far-fetched.
This project is like a lot of things Trump says, Vredenburg muses. “I don’t think it’s particularly well thought out. I don’t see a strong financial basis for what he’s saying,” he adds. “By the same token, I take everything Trump says to some degree seriously, because even things that may sound crazy eventually come around.”
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