Trump's plan to create sovereign wealth fund could face challenges

President Donald Trump's plan to create a sovereign wealth fund for future generations could face a host of challenges as the president looks to stand up a lasting fund quickly.

A sovereign wealth fund is a state-owned investment vehicle that invests in stocks, bonds, real estate, and metals. Some funds invest in alternatives such as hedge funds or private equity funds. Most use revenues from exports. Just what the fund Trump sets up will look like remains to be seen.

Trump has called for a sovereign wealth fund "to invest in great national endeavors for the benefit of all of the American people."

In February, Trump told Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick they had 90 days to bring him a plan for a sovereign wealth fund. The fund has big goals, according to Trump's order.

"It is in the interest of the American people that the Federal Government establish a sovereign wealth fund to promote fiscal sustainability, lessen the burden of taxes on American families and small businesses, establish economic security for future generations, and promote United States economic and strategic leadership internationally," the order says.

Trump also told Bessent and Lutnick to plan for funding mechanisms, investment strategies, fund structure and a governance model. Just what the fund would look like will depend on those features.

Most countries with SWFs are small and have substantial reserves, such as Singapore and the United Arab Emirates. The U.S. is large and its debts far exceed its reserves. The U.S. debt stands at $36.2 trillion, a figure the Congressional Budget Office expects to grow to $52 trillion by 2035, absent significant changes.

Dimitri Burshtein, a principal at Eminence Advisory, an Australian consulting firm, said the U.S. isn't in a position to deficit-fund a new SWF.

"It's always difficult to fund an SWF and generate consistent returns, but all the more so for a nation burdened by such large budgetary issues," he wrote in a recent op-ed published in the Wall Street Journal. "An SWF will be effectively debt-financed so long as the U.S. is running large deficits. All money is fungible. Even if Washington ostensibly funds an SWF with revenue from taxes or tariffs, it comes at the cost of more debt because the U.S. government doesn't have a budget surplus to invest."

Burshtein pointed to Australia's Future Fund as an example.

"Established in 2006 to finance the country's unfunded public pension liabilities by 2020, the Future Fund has yet to allocate a single dollar for this purpose and is unlikely to do so any time soon," he wrote. "The fund either reinvests its returns or spends it on remarkable administrative costs. The fund’s staff includes four people who in fiscal 2023-24 made more than a million Australian dollars a year. Meanwhile, government pension liabilities continue to burden taxpayers, costing billions annually while Australia’s government debt keeps rising."

Others have pointed to Malaysia's SWF as a prime example of what can go wrong. Politicians looted the 1Malaysia Development Berhad fund through systematic embezzlement, stealing about $4.5 billion and leaving the fund with outstanding debts that totaled $7.8 billion in 2020, according to a Reuters report. The government later absorbed those debts.

Jodi Vittori, a professor at Georgetown University's Walsh School of Foreign Service and a non-resident scholar with the Carnegie Endowment for International Peace, said such funds can become easy targets for corruption.

"There are systemic governance issues and regulatory gaps that can enable SWFs to act as conduits of corruption, money laundering, and other illicit activities," she wrote in a Carnegie report.

Transparency is a key issue, Vittori said.

"Without detailed financial and operational information, the door is left wide open for rapacious managers and political elites to misappropriate investment earnings," she wrote.

Bessent has said the U.S. can "monetize" federal assets. Trump's order said the federal government holds about $5.7 trillion in assets, a figure some have questioned.

"In practice, federal assets aren’t what they seem. Washington’s biggest asset is its $1.6 trillion in student debt, about a quarter of which is already set to be written off," the Wall Street Journal's editorial board wrote. "Other phantom assets include hundreds of billions of dollars in loans for disaster relief, low-income housing and green energy. The U.S. also owns some $2.6 trillion in property, software, plants and equipment, which are subject to depreciation."

That board concluded that Trump's plan for a SWF "deserves to die in Congress."