President Trump has signed an executive order to create a plan for establishing a US Sovereign Wealth Fund. The Fund could play a key role in reinforcing America’s position as a global leader by investing in “great national endeavors”. However, the high federal deficit and the yet to be seen effects of the current administration’s policies pose significant challenges, raising questions about how the fund would be financed.
As he stated during his pre-election campaign, President Trump plans to establish a US Sovereign Wealth Fund to support fiscal policy, reduce tax burden on American families and small businesses, ensure economic security for future generations, and strengthen US economic and strategic leadership internationally. This plan is expected to be submitted by early May and should include recommendations on funding mechanisms, investment strategies, fund structure and governance models, as well as evaluation of the legal considerations involved in establishing and managing such a fund. But what are sovereign wealth funds?
Sovereign wealth funds are state-owned investment funds that channel government’s surplus revenues into investments for the collective benefit of the nation. These funds can be used to finance infrastructure projects, invest in domestic businesses and stabilize the economy during crises by supporting the state budget instead of printing new money. Generally, sovereign wealth funds can be described as pools of assets managed by a country’s government and invested in financial instruments such as equities, bonds, real estate and other assets to generate economic benefits for its citizens.
The assets that make up a country’s sovereign wealth fund typically originate from resources the country has in abundance. The best examples are oil-rich nations like Norway, Kuwait and Saudi Arabia, where sovereign wealth funds serve as significant sources of government revenue and key economic policy tools.
Take, for instance, Norway’s Government Pension Fund Global, the largest SWF in the world, with assets exceeding $1.7 trillion. The fund invests across 69 countries, currently allocating 71.4% to equities, 26.6% to fixed income, 1.8% to real estate, and 0.2% to renewable energy infrastructure. Established in 1990, the fund was created after Norway experienced a recession due to oil price disruptions and a subsequent banking crisis. Its primary purpose was to manage surplus revenues from Norway’s oil trade, ensuring long-term financial stability. Essentially, all surplus oil revenues are funneled into the fund and then invested to finance capital projects and secure wealth for future generations when oil reserves are depleted.
Largest Sovereign Wealth Funds by total assets (in $ trillion)
Source: Sovereign Wealth Fund Institute, InterCapital Research
Other sovereign wealth funds, such as the China Investment Corporation, the Public Investment Fund of Saudi Arabia and the Qatar Investment Authority are also well known for investing in foreign infrastructure, luxury assets, sports content and other ventures. These investments are not just aimed at generating strong returns but also at expanding their countries’ global influence. Collectively, the world’s sovereign wealth funds are estimated to hold over $13 trillion in assets.
So, it can be said that most sovereign wealth funds are backed by surplus revenues (trade, budget or other). However, the US has consistently run budget deficits in recent years, with the last federal surplus recorded in 2001. In 2024, the federal deficit stood at $1.8 trillion (6.4% of GDP), while the trade deficit surged from $580bn in 2019 to $920bn in 2024. It remains to be seen how the Department of Government Efficiency (DOGE) would affect the public deficit and to what extent.
US Federal and trade deficit (in $ trillion)
Source: US Treasury Fiscal Data, InterCapital Research
On the other hand, the US has been a net energy exporter for several years now, and with Trump’s intentions to expand domestic energy production, surplus revenues could increase, potentially creating room for SWF funding.
Additionally, according to the White House’s fact sheet, the federal government directly holds $5.7 trillion in assets, including land, infrastructure, natural resource reserves and other, which could further increase the potential funding sources. Tariffs have also been suggested as a possible revenue stream, though they are not considered a stable or long-term funding source but could serve as a basis.
Moreover, 23 US states already operate their own investment funds, collectively managing $332bn in assets. The largest among them is the Alaska Permanent Fund Corporation, an $80bn state-owned investment fund that pays annual dividends to eligible Alaskan residents, built primarily on the state’s natural resource wealth.
Like any other sovereign wealth fund, the US SWF would face risks related to political interference, governance and ethical concerns (which instruments or projects is it allowed to invest in?). Furthermore, given the current high deficit, structuring the fund as a leveraged investment vehicle could introduce additional financial risks. However, despite these challenges, Scott Bessent (Secretary of the Treasury) has stated that the Fund is expected to be established in the next 12 months, with Trump previously suggesting that its size could approach, or exceed, $2 trillion, making it the largest sovereign wealth fund in the world.
To sum up, establishing a US Sovereign Wealth fund could help maximize the country’s wealth stewardship, support “great national endeavors” and promote “fair and balanced” trade (essentially, America First Trade Policy), national energy dominance, and tax and regulatory relief to drive strong economic growth. This, in turn, would generate greater wealth and revenue streams that the Fund could leverage. In practice, the US government could invest in equity stakes in public-private partnerships, strategic acquisitions such as TikTok, and infrastructure projects such as data centers and natural resource development. While the US has the potential to establish a sovereign wealth fund without imposing new fiscal burdens, it would first need to reduce unnecessary expenditures and bring the deficit to a more sustainable level.
