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Takeaways from the Key Notes
- Donald Trump, the president of the United States, signed on Monday an executive order establishing a sovereign fund.
- The sovereign wealth fund (SHF) is an investment vehicle owned by the state that invests federal funds in income-producing assets. This helps diversify economies.
- Norway has the biggest sovereign wealth fund in the world, which invests in its country's oil and gas revenues and stock in foreign countries to fund part of its government budget.
- China, Saudi Arabia and the United Arab Emirates also have large sovereign wealth funds.
Donald Trump’s executive order signed Monday laid the groundwork to create a sovereign-wealth fund within the next year.
These funds invest federal dollars in assets that generate income. These funds are a common feature in countries where resource extraction is a major industry. Income generated from the funds can help diversify an economy.
Trump’s administration has not provided many details about how this fund will be created or from where it will receive its funding. The U.S. has one of the most varied and largest economies in the world. However, the U.S. also runs a deficit.
"Other countries have sovereign wealth funds," Trump said. "They're much smaller countries, and they're not the United States; we have tremendous potential in this country."
These are some examples of countries that have a sovereign fund.
Norway
Norway has a $1.7 trillion sovereign wealth fund and is the largest in the world. It invests the country’s oil and gas revenues in financial markets, including stock in foreign companies. Around a quarter of government budget comes from income generated by the sovereign wealth funds.
China
China’s sovereign wealth fund is $1.3 trillion. China invests in global energy markets and many other renewable assets, as well as the Belt and Road Initiative and urbanization in Africa. This fund pays for a part of government budget.
United Arab Emirates
Abu Dhabi in the United Arab Emirates has a sovereign wealth fund worth $1 trillion. Although it does not divulge its investments in detail, the fund has indicated that it is invested across broad asset categories, including indexed funds and fixed income. It also invests within private and public equities as well as internal and external equity.
Saudi Arabia
Saudi Arabia’s sovereign wealth fund is $925 billion. Investments are made in Saudi Arabian public and private companies, along with international investment. It supports projects in Saudi Arabia that have a significant impact on the economy, such as refineries, industries, storage and pipelines, transportation and energy.
Correction, February 5, 2024. A previous version misidentified how much the federal deficit was.
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