What are Sovereign Wealth Funds?

Sovereign Wealth Funds (SWFs) are investment vehicles owned by countries. These funds can act as investment accounts or development tools, or both. The concept of a sovereign wealth fund is to grow current funds for the benefit of future generations.

These funds have several potential uses and countries use them differently. Some countries use SWFs to invest their economic or trade surpluses (What a concept!). This allows for the future stabilization of the economy in times of financial stress. It can also reduce the dependency on a singular commodity. If a country is an oil rich state, it makes a lot of sense for the country to invest a portion of its petroleum proceeds into a SWF for diversification away from oil in order to reduce economic shocks. Some countries use SWFs as public benefit pension funds.

SWFs often provide a source of funding for multinational firms engaged in global investment and trade, contributing to economic development and job creation. SWFs can also be used to further geopolitical agendas.

The Largest Funds and What They Do

The above graphic shows the world’s largest SWFs and their assets under management. Let’s take a quick look at the goals and investments of the Norway Government Pension Fund Global and China’s two SWFs, the China Investment Corporation and the SAFE Investment Company.

A few things to keep in mind, SFWs have a very different investment horizon than individual or even institutional investors. One that is generally measured in decades. Also, the amounts involved are typically very large with a single investment averaging well over $1B. These investors are the biggest of the big.

Norway Government Pension Fund Global

Yes, Norway. Surprised? You might be thinking, where did Norway get all this money? Norway is the 13^th largest oil producer in the world and a net exporter of 1.4M barrels per day. This is made even more significant as Norway has the population of Wisconsin. Thus, Norway finds itself to be very wealthy at the sovereign level. Norway uses its SWF to stabilize the economy and secure national financial health for its citizens well into the future.

The Norwegian sovereign wealth fund does not pay dividends directly to its citizens. Instead, it is integrated into Norway's fiscal budget, with 4% of the fund's assets available for government spending each year. This 4% is used to stabilize the economy and that includes ensuring state pensions which all citizens receive after age 67. The 4% spending threshold equates to about $325,000 spending per citizen per year. The Norwegian government currently runs a budget surplus of about $27B annually. This excess is paid back into the SWF.

The information available to the public regarding the fund is incredible. It is fully transparent, listing every investment which you can download into a spreadsheet if you are so inclined. This is remarkable and should serve as the model for sovereigns.

So how is the Norway Government Pension Global invested? (1 USD = 11 NOK)

Norway is stunningly diversified. What surprised me is the amount allocated to equities, 71.4% of the fund! Of course, the fund has invested across the entire spectrum of equities, from technology to utilities.

The return since inception in 1998 has been 6.3% annualized. That return on investment accounts for more than half of the fund’s value. Here are the returns by year since inception:

The fund has proven to be a great asset for Norway and is considered one of the best run sovereigns in the world.

The China Investment Corporation and SAFE Investment Company

The SAFE Investment Company is merely the Hong Kong run extension of the China Investment Corporation, so I will refer to them collectively under the CIC. Thus, China operates the world’s largest sovereign wealth fund at about $2.4T.

According to the CIC website:

“CIC’s overseas investment activities, undertaken by CIC International and CIC Capital, include public equity and bond investments; hedge fund and multi-asset investments; industry-wide private equity and private credit investments; direct investments and fund investments in sectors such as real estate, infrastructure, resources and commodities, and agriculture; and managing bilateral and multilateral funds.”

In reality the CIC supports China’s Belt and Road Initiative, also known as the New Silk Road. Consider this infographic:

From the Council on Foreign Relations:

“The Belt and Road Initiative (BRI), Chinese President Xi Jinping’s signature foreign policy undertaking and the world’s largest infrastructure program, poses a significant challenge to U.S. economic, political, climate change, security, and global health interests. Since BRI’s launch in 2013, Chinese banks and companies have financed and built everything from power plants, railways, highways, and ports to telecommunications infrastructure, fiber-optic cables, and smart cities around the world. If implemented sustainably and responsibly, BRI has the potential to meet long-standing developing country needs and spur global economic growth. To date, however, the risks for both the United States and recipient countries raised by BRI’s implementation considerably outweigh its benefits.

The Task Force finds that China is advancing this initiative in worrying ways that

• undermine global macroeconomic stability
• subsidize privileged market entry for state-owned and non–market oriented Chinese companies;
• enable China to lock countries into Chinese ecosystems by pressing its technology and preferred technical standards on BRI recipients;
• ensure countries’ dependence on carbon-intensive power for decades through its export of coal-fired power plants, making climate change mitigation significantly more difficult;
• make it harder for the World Bank and other traditional lenders to insist on high standards by offering quick and easy infrastructure packages that forego rigorous environmental- and social-impact assessments, ignoring project management best practices and tolerating corruption; and
• leave countries more susceptible to Chinese political pressure while giving China a greater ability to project its power more widely.

I chose the examples of Norway and China because I already knew they could not be farther apart. Norway’s SWF is acting for the economic benefit of the Norwegian citizens, while the CIC is pursuing a vast geopolitical agenda, that may also accrue to China economically as a secondary effect.

Sovereign wealth funds can be used in vastly different ways. So why should the US charter one?

Why the US Should Charter a Sovereign Wealth Fund

On Feb. 3, 2025 President Trump issued an executive order to establish a United States Sovereign Wealth Fund. You can read the order here.

The stated goal of the fund is “to promote fiscal sustainability, lessen the burden of taxes on American families and small businesses, establish economic security for future generations, and promote United States economic and strategic leadership internationally.”

To me, this sounds like a combination of the Norway and China models. If I had to guess, I would say that the fund would lean more toward the China model to respond to and attempt to counter the Belt and Road Initiative. It would be optimal if the fund could achieve both goals. Of course this remains to be seen.

I am naturally skeptical of any government run enterprise. However, I believe the US should charter a SWF. Just make sure that it can’t be looted by Congress.

An AI Sovereign Wealth Fund? Behold!

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