What do we know about the US SWF so far? Some insights from the FT.

Introduction
In this post, I take a deeper look at Trump’s proposal for a US Sovereign Wealth Fund—a topic with the potential to change the global investment landscape. Drawing from the latest Financial Times podcast Unhedged, I’ve noted key take-away points that capture both the potential benefits and significant risks of such a fund. These insights serve as a foundation to explore how a US SWF might reshape national economic policy and investment strategy.

Uncertainty Over the Fund’s Purpose
The first point—and perhaps the most frustrating—is that the new Trump administration has not defined the goal of the fund. Is it meant to be a stabilization fund, a savings fund, or a strategic fund? Meanwhile, it appears this isn’t a new idea at all. The Biden administration explored the concept but chose not to pursue it, presumably concluding it wasn’t the best option—although the reasoning remains unclear. However, assuming the fund is for the vague ideal of making America great again then where would the funds come from exactly?

The US Wealth Conundrum
A commonly raised point in discussions is that a SWF is typically designed to manage ‘wealth,’ yet the US is not currently in a position of excess wealth. The country is borrowing more than it collects from taxpayers or through other revenue streams like oil and lease agreements. As a side note the podcast even mentions how Britain simply spent their wealth in the ‘70s on social programs. Maybe a sovereign wealth fund would have been a good idea for Britain at that time?

Potential Sources of Funds
Given the US’s deficit, where might the necessary funds originate? There are a few pockets of US wealth that could be tapped, though each comes with its own limitations:

  • Exchange Stabilization Fund: An asset of approximately $200bn that could support the dollar in emergencies.
  • Fort Knox Gold: The gold reserves stored there.
  • Social Security Trust Funds: Trillions of dollars in very risk-averse assets.

According to the podcast, the US holds about $5.7tn in assets—with around $1.2tn in cash or gold and the remainder in illiquid assets. One potential method to create the fund would be to issue Maga SWF bonds backed by this asset pool and invest the proceeds globally.

Guardrails and Market Implications
Even if the fund were successfully established, questions remain regarding checks and balances to ensure fair deployment of funds. Without clear guardrails, there’s a risk of cronyism and market distortions, including crowding-in or crowding-out effects where the whole market crowds into a company endorsed by the fund or shuns one that is not. These movements could be huge and artificially inflate prices and dilute returns. This scenario bears similarities to the Government Linked Companies (GLCs) issue in Singapore. GLC’s are companies significantly owned by the government and which consequently don’t operate according to strict market efficiencies.

The Rationale Behind a SWF
You might ask, “Why a SWF in the first place? Why not use legislation to direct the market?” One argument is that the SWF could enable the deployment of capital without direct democratic counterbalances, effectively shifting some power of the purse away from Congress. As Aiden Reiter puts it in the FT Unhedged Podcast: “The point of a sovereign wealth fund, it would seem, would be to strategically deploy capital without the democratic counterbalances. That could just be the point.”

Long-Term Projections and Risks
One scenario, outlined by Stephen Jen in the FT, suggests that if the Maga bonds SWF fund grows to $2tn in Assets Under Management (AUM) and tracks growth similar to the S&P 500, it could balloon to $13.4tn in 20 years—turning the US into a gigantic hedge fund. However, such growth could also precipitate market bubbles and other systemic risks.

Pros and Cons at a Glance

  • Pros:
    • Utilizes market forces to grow a significant pool of money for social programs like Social Security and healthcare.
    • Provides a nimble investment mechanism for a powerful executive president to address domestic and international priorities.
  • Cons:
    • The US lacks the excess wealth necessary, relying instead on borrowing.
    • There is a risk of losing money, cronyism, and significant return dilution when investing trillions of dollars in the market.
    • It could serve as a method to circumvent established legislative processes.

Will It Happen?
For what it’s worth, my gut says it will. Sure, it’s still a mystery what the fund’s actual purpose would be, other than to “make America great again”. Nor is it clear where the money will come from other than perhaps the proceeds from Musk’s Department of Gov’t Efficiency (DOGE). But, I can see how hubris and the thrill of an unleashed sovereign slosh fund could outweigh any perceived drawbacks. With political and public momentum building, this idea might just push through sooner rather than later. Let’s see how things evolve—I’ll be back in a few months once that study Trump requested drops. In the meantime, it’s starting to feel a lot like Singapore around here.