President Donald Trump has signed myriad executive orders since returning to the White House in January 2025. Among them was an order calling for the creation of a U.S. sovereign wealth fund.
Never heard of a sovereign wealth fund? You're in the right place. Read on to learn what a sovereign wealth fund is, how it works, and the challenges associated with creating one.
Definition
What is a sovereign wealth fund?
A sovereign wealth fund is a state-owned investment vehicle that invests for a country's long-term future. According to the International Forum of Sovereign Wealth Funds, sovereign wealth funds share three characteristics:
- They're owned by a country's general government, which can include both the central government and subnational governments.
- They include investments in foreign financial assets.
- They invest for financial objectives.
Often, countries invest extra money from budget surpluses into their sovereign wealth fund. These funds are especially common in commodity-rich nations that use proceeds from state-run oil, natural gas, precious metal, or mineral operations to invest for future generations.
Types
Types of sovereign wealth funds
The nature of sovereign wealth funds can vary significantly based on funding sources and investment goals, but here are some common types.
Savings funds
Savings funds are the most common type of sovereign wealth fund. They're often set up by nations with rich commodity resources that could be depleted eventually, or that risk becoming obsolete due to technological advancements or new regulations.
Countries that establish savings funds seek to convert their significant wealth from natural reserves into financial assets that they invest for future generations.
Stabilization funds
Stabilization funds are created with the goal of having a smoothing effect on the country's economy, helping it to avoid extreme peaks and lows. During good times, the country can pour its excess revenue into a stabilization fund. But if the country experiences a significant drop in revenue due to falling commodity prices or weakening global demand, the government can then draw from its stabilization fund.
Strategic funds
Some countries use sovereign wealth funds as a strategy to support and promote the domestic economy. Such funds may provide early funding to young companies in industries that the government wants to expand. Or the government may use these funds to become a stakeholder in a well-established company.
Trump's plans
What we know about Trump's plans for a sovereign wealth fund
President Trump signed an executive order on Feb. 3, 2025, calling for the secretaries of the Treasury Department and Commerce Department to submit a plan to create a sovereign wealth fund within 90 days. The order states that the fund would "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."
It's not clear where the money for a U.S. sovereign wealth fund would come from, considering the federal government has long run a budget deficit. But some speculate that the funds would come from selling off public lands.
Trump has floated the idea of a sovereign wealth fund in the past, saying it could be funded by "tariffs and other intelligent things." He has suggested that the fund could be used to buy video-sharing app TikTok.
Related investing topics
Example
Example of a sovereign wealth fund: Norway's Government Pension Fund Global
The Norwegian government claimed sovereign rights over natural resources in its part of the North Seas in the early 1960s. In 1969, Norway discovered that it had some of the largest offshore oil fields in the world, allowing oil revenue to become a huge source of revenue for the government.
The government sought to promote stability in the Norwegian economy and ensure that current and future generations would benefit from oil resources. So in 1990, the country's parliament passed legislation that created Norway's Government Pension Fund Global.
The Norwegian government deposits oil and gas revenue into the sovereign wealth fund. However, most of the fund's value has come from investing in stocks, bonds, real estate, and renewable energy infrastructure abroad. It's among the largest sovereign wealth funds in the world, with more than $1.7 trillion worth of assets as of March 2025.
Norway deposits any budget surpluses into the fund, but in downturns, it draws from the fund to cover deficits. The government spends less than 3% of the fund's resources -- only the equivalent of its real returns -- to ensure that Norwegians can enjoy the prosperity of its oil resources for many generations to come.
