Politicians are interested in sovereign wealth funds

Republicans and Democrats, despite their ideological differences, seem to support creating a sovereign wealth fund for the US. The state-owned initiative would function like hedge funds or private equity firms, investing in financial assets like stocks, bonds, real estate or startups.

Last week, GOP nominee Donald Trump said he would establish one if elected again and invest in assets like infrastructure and healthcare. Now, sources close to the White House say President Joe Biden’s top aides are developing a proposal for a sovereign wealth fund focused on national security investments, particularly in technology, energy, and supply chains.

The idea is not new
Countries like Saudi Arabia and Norway have sovereign wealth funds and invest money generated through natural resources like oil.

Alaska has a Permanent Fund Dividend (PFD) enshrined in the state’s constitution. According to it, 25% of the incomes generated via oil and mineral development in the state must go into the fund. Last year, most Alaskans received $1,312 from it.

Supporters believe creating a sovereign wealth fund could help emerging technologies such as nuclear fusion, shipbuilding and quantum cryptography. It could also support riskier investments for strategic reasons, like competing with China in rare minerals.

Critics argue that the US lacks the budget surplus and natural resources typical of countries with sovereign wealth funds. America also has a total debt load of more than $35 trillion.

There is also the risk of political misuse of such a fund.

Most importantly, creating a sovereign wealth fund would need Congress’s approval. It would have to pass through hurdles such as potential debates about funding sources.

While some see the idea as a way to strengthen US investments, economic experts, including former Treasury Secretary Lawrence Summers, question its need, given the nation’s large deficits.