Pros and cons of a US sovereign wealth fund

Katie Martin (0:09)

Does the US government need an investment fund? A lot of people have dismissed the idea, but you know what? It might just get one. Donald Trump has been talking about setting up what's known as a sovereign wealth fund, vaguely along the lines of the Middle East model. So big stashes of cash that invest across global stocks, bonds and whatever else they want. Today on the show, we're asking, why though? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at FT Towers in London, where the sun is finally making an appearance. And I'm joined very fresh from his travels by Aiden Reiter from the Unhedged newsletter in New York. Aiden, where have you been?

Aiden Reiter (0:51)

I was in London, hanging out with you, Katie. Then I was in Bosnia, Serbia and Israel.

Katie Martin (0:57)

You've been to some wacky places.

Aiden Reiter (0:59)

Yeah, it was really interesting. Would not recommend going to Sarajevo and Belgrade in the winter, but it was really, really beautiful.

Katie Martin (1:04)

Okay, noted. So, okay, a sovereign wealth fund.

Aiden Reiter (1:09)

Yeah.

Katie Martin (1:09)

A mega sovereign wealth fund, no less. What's the score here?

Aiden Reiter (1:14)

Well, Donald Trump has, I think, on February 3rd issued that they want to create a sovereign wealth fund for the benefit of the US population. That would theoretically allow them to invest in foreign assets, in US domestic priorities, whether that be promoting manufacturing, whether that be supporting supply chains. It's unclear, right? They were not clear with what the actual goal of such a fund would be. We should note that they're not the first administration to flirt with this idea. Apparently, the Biden administration also looked into making their own sovereign wealth fund. But we assume since they didn't actually do it, they concluded that this is not the best idea.

Katie Martin (1:50)

So what we've got now is there's an executive order that's been signed. Trump wants to see a plan from the Treasury Secretary within the next couple of months. This is kind of weird though, right? So sovereign wealth funds, if you're not familiar with them, they're like big pots of cash that sort of sits somewhere in government apparatus.

Generally, they fall into a few buckets. Some of them are like savings funds. So they're like piggy banks for the distant future. Some of them are stabilization funds. So just in case in a rainy day, say there's some sort of crisis that hits, you can tap into it then. Some of them are like strategic funds, which are almost like, so you're a government that's got various state assets. You don't quite know where to park them, so you stick them in these special purpose vehicles. So the big example of this, there's quite a few of them in the Middle East, but the big example is Norway. So we had the chief exec of the Norwegian Oil Fund on this very podcast just a few months ago. But the point is Norway discovered oil, had oil coming out of its ears, loads and loads of oil, just too much money coming in all at once. And so the Norwegian government said, I know, why don't we take these oil revenues that we don't want to spend all at once and put them in a fund and use them to invest around the world. And then when at some point we run out of oil or we decide not to drill any more of it out of the ground, we've still got this massive pot of national wealth. The Brits for what it's worth decided to do it differently, just spent it all back in the 70s and now look where we are. Anyway, that's a whole other story. But the US is not quite in that situation, right? It's not in a situation where it's got too much money coming in, it doesn't quite know what to do with it. So what is Donald Trump talking about here?

Aiden Reiter (3:35)

We're in the opposite situation. We are borrowing a lot of money, much more than we're getting in terms of revenues from taxpayers or other oil land lease agreements. So he's talking about trying to create some pile of money and it's a pile of money we arguably don't have right now, right? The US deficit is huge. It is growing. It is a constant problem for people in the market. If you want to make a wealth fund, you need wealth. The United States does not have health right now. Now, there are some funds that theoretically could be tapped into. And there are some pockets of money sitting around the US government that are kind of sitting idle. So you have things like the Exchange Stabilization Fund. As you were saying before, some countries have funds that they could deploy in the case of a crisis. The US government has about $200 billion that could be deployed to support the US dollar.