Would a sovereign wealth fund work in the US?

Former President Donald Trump pitched the idea of a sovereign wealth fund for the US Thursday in a talk with business leaders, raising questions of why the country doesn’t already have one – and whether it could benefit from it.

While such funds have become common for nations heavily reliant on natural resources exports, they are less prevalent in the West. But some US states have them, most notably the Alaska Permanent Fund Corporation, which provides a $1,000 annual dividend to each resident.

Trump described the idea without giving many specifics, telling a crowd at the Economic Club of New York that such a fund could be seeded with money from tariffs and used to pay down the national debt or to finance infrastructure. Some of the members of that club include: Lee Ainslie, managing partner of Maverick Capital; Sander Gerber, CEO and CIO of Hudson Bay Capital; Thasunda Brown Duckett, CEO of TIAA; William Lewis Jr., partner at Apollo Global Management; and John Rogers Jr.; Co-CEO of Ariel Investments.

It is unclear who attended the speech, but Trump said that many of the people in the room could be among those helping advise such a fund.

“Historically, these wealth funds have been located in countries that have a lot of oil wealth. They want to plan for the future. They want to save money before the oil wealth runs out,” said Asif Malik, assistant professor of accounting and finance at California State University, San Bernardino. “The US has other institutions that make sure that things don’t go sour… We are not that reliant on one single source of wealth.”

Another reason for sovereign wealth funds, also known as social wealth funds, is that they can reflect collective ownership of resources.

“It’s probably why we don’t talk about it too much,” said Matt Bruenig, president of think tank People’s Policy Project.

The fact that Alaska’s fund pays dividends to residents makes it stand out, he noted.

“Alaska is the most interesting social wealth fund in the world for that reason. They really do have this notion that essentially every resident of Alaska owns one share of this collective fund, and they each get their dividend each year,” he said.

Socialist concepts don’t tend to jibe with Trump and the Republican Party, though.

“It almost seems like he’s more interested in the investment side of it,” Bruenig said.

A curious bit is that one of the biggest target of Trump’s ridicule, Hillary Clinton, supported the idea of a social wealth fund for the US similar to Alaska’s model, writing about the concept in her post-2016 memoir, Bruenig said.

Among various proposals over the years to start a US fund, one idea has been to use the returns to help fix the Social Security Trust Funds’ deficit, he said.

At about $1.7 trillion, the largest sovereign wealth fund is Norway’s system. That country is an outlier but offers a promising example, Bruenig wrote in a paper about social wealth funds.

“The idea that a society could collectively own three-fourths of its non-home wealth through social wealth funds administered by a democratically elected government without any negative economic consequences would be rejected as preposterous by most political and economic commentators in America today,” he wrote. “But that is precisely what Norway has done and seemingly what any country could do if it has the necessary will and competence.”

Most funds are not based in democratic countries, Malik said.

There are questions about why the US would need such a fund, he said.

“We don’t rely on oil wealth… We have very well-functioning capital markets,” he said. “There really isn’t a need for one, and the issues we could have are political interference.”

China’s fund, for example, appears to favor investments in businesses loyal to the Communist Party, he said. And the returns seen by some of the funds run by oil-rich nations are unimpressive, he said.

“They don’t actually do very well. One of the reasons that has been cited is political interference.”

But one emerging area of interest to sovereign wealth funds is the financial advice business. For example, in June, Fisher Investments announced that it would sell a minority stake in the firm to the Abu Dhabi Investment Authority and Advent International totaling between $2.5 billion and $3 billion, valuing the firm at as much as $12.75 billion.