Could the US really set up a sovereign wealth fund? TD Cowen responds
The idea of a US Sovereign Wealth Fund has gained attention, with former President Donald Trump and current President Joe Biden proposing different versions of such a fund.
Trump’s idea envisions a broad national investment initiative, while Biden’s plan focuses more narrowly on securing critical resources in technology, energy and supply chains.
Sovereign wealth funds are government investment entities that invest in financial assets such as stocks, bonds, real estate and other ventures.
Countries such as Norway, Saudi Arabia and China have used sovereign wealth funds to diversify their economies, stabilize their budgets and reinvest national revenues, often from natural resources or surpluses. The goal is usually to generate long-term returns that can finance future government spending or advance national interests.
The US version of a sovereign wealth fund has come in two different forms. During a speech at the Economic Club of New York, Trump called for a fund that could invest in major national projects, with profits used to finance tax cuts and reduce the national debt.
The Biden administration, in contrast, is reportedly exploring a more targeted fund that would target strategic sectors such as technology and energy, with a particular focus on strengthening key links in global supply chains.
TD Cowen analysts express skepticism about the feasibility of a broad US SWF. They argue that such a fund would be vulnerable to political incentives, with investment decisions potentially shaped more by political agendas than by the goal of maximizing returns for taxpayers.
This could lead to a public outcry if investments were seen to benefit certain sectors or interests over others. Moreover, any investment losses could become highly politicized, with immediate ramifications for the respective administration, while gains would take years to materialize, limiting the political benefits.
“Trump reportedly wants to fund the fund with tariffs, although we believe that would require legislation,” the analysts said.
This redirection of resources could lead to higher national debt and increased costs for consumers and businesses associated with rising Treasury rates.
While a broad US SWF along the lines of those of Saudi Arabia or Norway seems unlikely, TD Cowen sees potential for a more focused national security-driven fund.
Such a fund would be more in line with the Biden administration’s goals of safeguarding critical industries and technologies, especially in the face of growing global competition from countries like China.
By framing the fund as a national security priority rather than a purely economic initiative, the government could garner cross-party support.
In this scenario, investments could focus on sectors such as semiconductors, renewable energy and supply chain resilience.
Rather than trying to achieve broad economic returns, the primary goal would be to ensure U.S. competitiveness and security in strategic areas, potentially bypassing some of the political hurdles that would accompany a more general investment fund.
One possible consequence of these discussions is a resurgence of debate about the idea of investing Social Security funds in the stock market to increase returns.
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Written by D Fernando
