As US President Donald Trump advances a more nationalist economic agenda, a provocative new proposal has entered the policy spotlight: the creation of a US sovereign wealth fund.
Touted by the Trump administration as a potential tool to reduce US debt and enhance financial independence from foreign capital, the so-called “MAGA SWF” is a test case for how far America is willing to extend state involvement in the market economy.
Mr Trump has portrayed the proposed fund as a patriotic initiative and a potential fiscal innovation – a vehicle to generate a “gigantic profit” that, in theory, could help ease the federal debt burden, currently about $36 trillion.
But behind the slogans, the financial mechanics and governance realities are far less straightforward.
In theory, borrowing at current Treasury rates – around 4.7 per cent on 30-year bonds – to invest in equities could generate positive returns for a MAGA SWF, leveraging the so-called equity risk premium. Historical data supports the premise: US stocks have averaged just over 10 per cent annually since 1928, compared with 5.2 per cent for 10-year Treasury bonds.
But applying that logic to public debt reduction is far from straightforward. Markets are volatile, returns are not guaranteed and the US – unlike Norway or Singapore – lacks a stable surplus to fund such a venture.
Borrowing may be the most financially viable option – but also the most politically fraught. While Republicans have long warned about deficits, recent administrations, including Mr Trump’s first, have added to the national debt. Issuing new bonds to buy equities would mark a clear break from that rhetoric.
Some in Mr Trump’s orbit have floated the idea of funding the sovereign wealth fund through the sale of federal land and natural resources. On paper, the federal government owns some 259 million hectares – a potentially valuable source of capital.
But the proposal raises sharp concerns: whether assets would be sold at fair market value, whether politically connected buyers might benefit, and whether the long-term environmental costs – particularly if fossil fuel or mining companies, historically the most active buyers of public land, were involved – would outweigh the fiscal gains.
A sovereign wealth fund of the scale under discussion – potentially reaching or exceeding $2 trillion – would also represent a substantial new force in capital markets. The sheer volume of buying could lift asset prices and, in doing so, erode the very returns the fund aims to generate.
Geographic allocation presents a deeper structural dilemma. While the fund’s investment strategy remains undefined, there is political pressure to prioritise US assets – a move that could inflate domestic valuations and tether performance to an economy already burdened by high debt and a projected $1.9 trillion deficit in 2025.
The added uncertainty of Mr Trump’s tariff policies – despite a 90-day pause on new levies – has revived fears of recession, inflation and rising unemployment, further complicating any bet on the domestic outlook.
Diversifying internationally may ease concentration risk but introduces currency exposure – a major vulnerability when the dollar is strong. The US Dollar Index, which tracks the greenback against a basket of major currencies, is currently around 102, above its 10-year average. That strength means foreign gains can shrink when converted back.
The world’s largest and most successful sovereign wealth funds – such as Norway’s Government Pension Fund Global, the Abu Dhabi Investment Authority and Singapore’s Temasek and GIC – all share one defining trait: a stable and consistent source of capital. Norway and Abu Dhabi draw from oil revenues; Singapore relies on long-term surpluses and returns from state-owned enterprises.
The US, by contrast, runs persistent budget deficits and lacks a comparable stream of surplus revenue. That leaves a fundamental question unanswered: where would the money come from?
Even if funding were secured, governance remains a central concern. Sovereign wealth funds tend to perform best when shielded from political cycles and short-term policymaking – something codified in the Santiago Principles, which set global best practices, and reflected in the governance of funds like Norway’s GPFG.
Where that insulation breaks down, the risks – financial, reputational and legal – can be severe. Without clearly defined rules and institutional independence, a US sovereign wealth fund could face pressure to align with political priorities, particularly in an environment where partisan objectives increasingly shape industrial and trade strategy – like Mr Trump’s recent tariff blitz.
The dangers are not hypothetical: Malaysia’s 1MDB fund, launched in 2009, collapsed under allegations of large-scale misappropriation – a case that highlighted the consequences of weak oversight and political interference. For the MAGA SWF to deliver credible returns, independence may matter as much as capital.
For institutional investors, a large government buyer in equity markets is a double-edged proposition: it may boost liquidity and lift prices in the short term, but the longer-term risk is distortion – particularly if investment decisions are guided by policy goals rather than financial merit.
Capital funnelled into favoured sectors or regions could crowd out private investors and undermine confidence.
Structured with discipline, transparency and a clear mandate, the fund could, in theory, become a durable source of national wealth. Without those protections, it risks becoming a lever of political influence, dressed in the language of finance.
Karl Schmedders is professor of finance at IMD
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What is Reform?
Reform is a right-wing, populist party led by Nigel Farage, a former MEP who won a seat in the House of Commons last year at his eighth attempt and a prominent figure in the campaign for the UK to leave the European Union.
It was founded in 2018 and originally called the Brexit Party.
Many of its members previously belonged to UKIP or the mainstream Conservatives.
After Brexit took place, the party focused on the reformation of British democracy.
Former Tory deputy chairman Lee Anderson became its first MP after defecting in March 2024.
The party gained support from Elon Musk, and had hoped the tech billionaire would make a £100m donation. However, Mr Musk changed his mind and called for Mr Farage to step down as leader in a row involving the US tycoon's support for far-right figurehead Tommy Robinson who is in prison for contempt of court.
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Power: 420hp
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6.30pm Mazrat Al Ruwayah – Group 2 (PA) $36,000 (Dirt) 1,600m
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Price, base / as tested: Dh78,000 / Dh97,650
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What is graphene?
Graphene is extracted from graphite and is made up of pure carbon.
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It conducts electricity better than any other material at room temperature.
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Graphene can also detect cancer cells in the early stages of the disease.
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1pm: departure by plane from Rome / Fiumicino to Abu Dhabi
10pm: arrival at Abu Dhabi Presidential Airport
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12pm: welcome ceremony at the main entrance of the Presidential Palace
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5pm: private meeting with Muslim Council of Elders at Sheikh Zayed Grand Mosque
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9.15am: private visit to undisclosed cathedral
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1pm: departure by plane to Rome
5pm: arrival at the Rome / Ciampino International Airport
Tips to avoid getting scammed
1) Beware of cheques presented late on Thursday
2) Visit an RTA centre to change registration only after receiving payment
3) Be aware of people asking to test drive the car alone
4) Try not to close the sale at night
5) Don't be rushed into a sale
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- Flexible work arrangements
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Under the UK government’s proposals, migrants will have to spend 10 years in the UK before being able to apply for citizenship.
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