On Monday, US President Donald Trump signed an executive order that instructs the creation of a sovereign wealth fund within the next year, with the potential for this fund to acquire the short video app TikTok. The concept of a sovereign wealth fund is not new, as many countries, particularly in the Middle East and Asia, have established similar funds to make direct investments using government funds. The details in the executive order, however, are sparse, as it only calls on the Treasury and Commerce Departments to submit a detailed plan for the fund within 90 days. This plan should include recommendations on its funding mechanisms, investment strategies, governance model, and overall structure.
Typically, sovereign wealth funds are supported by budget surpluses, but the US operates at a deficit, which adds complexity to the creation of such a fund. This initiative would likely require approval from Congress, making it uncertain whether it will come to fruition. Trump has emphasized that the fund could create significant wealth, potentially being fueled by tariffs or other government sources. He has proposed that the fund could support major national projects, including infrastructure, manufacturing, and medical research.
Treasury Secretary Scott Bessent confirmed that the fund would be established within the next 12 months. He stated that the fund would aim to "monetize the asset side of the US balance sheet," utilizing both liquid assets and other resources within the country. One potential approach would be to repurpose the US International Development Finance Corporation (DFC) to function like a sovereign wealth fund, a move the Trump administration reportedly considered recently. The DFC is a government agency that partners with private entities to finance development projects around the world.
The proposal also suggested that the fund could serve to address national economic priorities, and even hinted at the possibility of using the fund to acquire TikTok, which has been embroiled in a national security dispute due to its Chinese ownership by ByteDance. Trump mentioned he had been in talks with various parties about TikTok’s future, and that a decision could be made in February. He suggested that, if the right deal is reached, TikTok might be included in the sovereign wealth fund.
However, creating and funding a sovereign wealth fund in the US raises numerous challenges. Experts argue that it would require congressional approval and new funding sources, particularly given the absence of a budget surplus. Moreover, establishing such a fund through an executive order may not be feasible, as it would require a dedicated legal and financial framework, as well as legislative backing. Currently, there are over 90 sovereign wealth funds globally, managing assets totaling more than $8 trillion. While several US states, including Alaska, Texas, and New Mexico, have their own wealth funds funded by natural resources like oil, the creation of a national sovereign wealth fund would be unprecedented.
