WASHINGTON: President Donald Trump signed an executive order on Monday to create a U.S. sovereign wealth fund within the next year. This fund might buy TikTok.
If established, this sovereign wealth fund would place the U.S. among several countries, especially in the Middle East and Asia, that have created similar funds. These funds aim to make direct investments using government dollars. The executive order provided limited details, directing the Treasury and Commerce Departments to develop a plan within 90 days. This plan should include recommendations for funding mechanisms, investment strategies, fund structure, and governance models.
Financial Structure and Congressional Approval
These funds usually need a budget surplus. However, the U.S. operates at a budget deficit, making the creation of such a fund more complex. Approval from Congress would likely be necessary for the fund to be established.
“We’re going to create a lot of wealth for the fund,” Trump told reporters. He emphasized that it is time for the U.S. to have a sovereign wealth fund. As a presidential candidate, Trump proposed this investment vehicle as a means to fund significant national projects, such as infrastructure, manufacturing, and medical research.
Although administration officials did not disclose how the fund would function or be financed, Trump previously mentioned that it could be funded through “tariffs and other intelligent things.” Treasury Secretary Scott Bessent said the fund will be ready in 12 months.
Asset Monetization and Development Agency
“We’re going to monetize the asset side of the U.S. balance sheet for the American people,” Bessent explained. The fund would include a mix of liquid assets and domestic assets aimed at benefiting Americans. One proposal is to convert the U.S. International Development Finance Corp (DFC) to operate similarly to a sovereign wealth fund. Recent reports suggested that this idea was under consideration by the Trump administration.
Trump announced on Friday that he was nominating Benjamin Black to head the DFC. Black is a managing partner at Fortinbras Enterprises and the son of Leon Black, co-founder of Apollo Global Management.
Previous Considerations and Legislative Needs
The Biden administration had also considered establishing a sovereign wealth fund before Trump’s election, according to reports. However, details on the fund’s structure and funding remain vague. Experts indicate that Congress would likely need to authorize new funding, especially since there is no existing surplus available. The executive order has directed officials to assess any legislative needs.
Clemence Landers, a former Treasury official now with the Center for Global Development, noted that setting up such a fund would require congressional approval. “You can’t establish an institution by executive order,” she pointed out. “More importantly, you can’t fund an institution by executive order.”
Market Reactions and Economic Implications
The announcement took investors by surprise. Colin Graham, Robeco’s multi-asset head, remarked, “Creating a sovereign wealth fund suggests that a country has savings that can be allocated to this. The economic rules of thumb don’t add up.”
There are currently over 90 sovereign wealth funds globally, managing more than $8 trillion in assets, according to the International Forum of Sovereign Wealth Funds. Several U.S. states, such as Alaska, Texas, and New Mexico, have their own wealth funds that help finance various priorities, relying heavily on revenue from natural resources like oil and land.
The Potential TikTok Acquisition
In an unexpected turn of events, Trump suggested that the newly proposed sovereign wealth fund could potentially be used to acquire TikTok. The app’s future has been uncertain since a law requiring its Chinese owner, ByteDance, to sell it or face a ban went into effect on January 19. Shortly after taking office, Trump signed an executive order delaying the law’s enforcement by 75 days.
Trump stated he was in talks regarding TikTok’s purchase and expected to make a decision on the app’s future in February. With around 170 million American users, TikTok’s fate is closely watched. “We’re going to be doing something, perhaps with TikTok, and perhaps not,” Trump said. “If we make the right deal, we’ll do it. Otherwise, we won’t…we might put that in the sovereign wealth fund.”
