President Donald Trump signed an executive order earlier this week ordering the creation of a sovereign wealth fund within the next year.
If that goes through, the sovereign wealth fund could place the U.S. alongside other countries, particularly those in the Middle East and Asia, that use similar funds to make direct investments with government dollars.
Trump also said that if this fund goes through, the money in it could be used for something like buying TikTok. The app’s fate has been up in the air since a law requiring new ownership took effect in January.
Rachel Wellhausen, a professor of government at UT Austin, said there are many ways to operate a sovereign wealth fund.
“The idea of a sovereign wealth fund originated as a way for especially an oil-rich country to find a way to invest that extra cash that’s coming in from exporting so much oil,” she said. “And to place that [money] in investments so that it’s not going to cause things like inflation and disrupt the economy.”
The sovereign wealth fund operates almost like a venture capital fund, Wellhausen said. For example, an entrepreneur could approach a government to ask for officials to invest in business ideas. This system puts money to work instead of just having it sit in the government treasury.
“And it’s the government officials, the political actors, who are making the investment decisions. And different countries run them in different ways,” she said. “Norway has a huge sovereign wealth fund, and they deliberately, politically, choose to invest in green things. They don’t invest in the defense sector, things like that. So you can have different sorts of objectives other than just maximizing returns because it’s a politician, it’s a government, making the choice.”
» GET MORE NEWS FROM AROUND THE STATE: Sign up for Texas Standard’s weekly newsletters
However, the U.S. does not have a budget surplus, which means it’s unclear what money would go into a sovereign wealth fund.
“That’s the thing that I think is making people puzzled, because it sounds great on the surface,” Wellhausen said. “But if you don’t have a ready way to fund that fund, then that’s an open question. So I’m not sure where this money would come from. And that’s why sovereign wealth funds are typically something with extra cash lying around.”
There is another open question about a possible U.S. sovereign wealth fund, Wellhausen said.
“If you do fund this wealth fund, then where are you going to invest it?” she said. “So part of what other countries do, especially oil-rich countries, is to get that money out of their domestic economy to invest it abroad. … The idea of using government-directed money through a sovereign wealth fund to invest domestically, governments certainly do that, but that’s not usually what a sovereign wealth fund would be.”
The notion that the U.S. might use a sovereign wealth fund to buy TikTok does not fit into what these types of funds usually do, Wellhausen said.
“To put it in kind of blunt terms, if the U.S. government forced a sale of TikTok to the U.S. government as a buyer, that is veering into what we would typically call expropriation,” she said. “That’s totally outside the realm of what sovereign wealth funds are usually doing, which is also making it complicated for these two issues to be linked.”
