US sovereign wealth fund: White House eyes national security role

The behind-the-scenes work of national security adviser Jake Sullivan and his deputy, Daleep Singh, mirrors — at least in spirit — a proposal presented Thursday by Republican presidential nominee Donald Trump, who called for a government-owned investment fund to finance “great national efforts” during a speech at the Economic Club of New York.

Sullivan and Singh have been working on the project for months in a series of weekly brainstorming efforts and have met with economic experts from the National Security Council to debate the size, structure, funding, leadership and potential barriers to a proposed fund .

Work has progressed to the point where planning documents have been circulated among White House staff and key agencies, according to people familiar with the matter, who spoke on condition of anonymity to discuss internal deliberations. But even as work has progressed, key details – including, critically, the fund’s structure, funding model and investment strategy – remain unclear.

Still, Trump’s public endorsement of the idea could provide bipartisan momentum for the initiative, which would be relatively new outside of countries with significant commodity exports and budget surpluses, such as the oil-rich nations of the Middle East.

Countering US adversaries’ hold on critical materials and emerging technology is a key reason for the project, and advisers are particularly concerned about being able to use the capital at the pace and scale of other countries. The China Investment Corporation, for example, has made substantial investments in natural resources, leveraging the country’s foreign exchange reserves.

Those working on the effort are eager to formalize the proposal in the remaining months of Biden’s presidency. Aides believe such a fund could help support U.S. interests by providing first-loss equity, guarantees or bridge financing to illiquid but solvent companies that compete with Chinese firms.

Supporters of the idea believe the fund could be used to support emerging technologies where there are high barriers to entry — including shipbuilding, emerging geothermal and nuclear fusion projects, and quantum cryptography. Biden aides similarly believe the fund could be used to create synthetic reserves of critical minerals by purchasing futures contracts. Singh, one of the architects of the project, recently returned to administration after a stint working for PGIM Fixed Income.

The approach is not unlike aggressive investments in technology firms by some Asian nations, such as Singapore state-owned Temasek Holding’s backing of Microsoft Corp. and NVIDIA Corp. But Temasek’s investment in bankrupt crypto firm FTX shows some of the risks in such an endeavour.

Most other sovereign wealth funds – including the investment authorities of Kuwait, Norway and Abu Dhabi created in the mid-20th century – were seeded with surplus oil revenues. However, some US states, including Alaska, New Mexico and Texas, have been successful in creating their own government-run investment vessels funded by energy and mineral resources. And other nations, such as Canada and Australia, have independently managed sovereign wealth funds.

Expansion of Congress

Creating any fund would require an act of Congress, where a fight over a potential funding source will prove contentious. The White House has yet to begin engaging lawmakers on the idea — though it plans to discuss the proposal with both Capitol Hill and the private sector in the near future.

Last year, a bipartisan group of senators led by Louisiana Republican Bill Cassidy and Angus King, an independent from Maine who caucuses with Democrats, suggested creating a with-profits investment fund to help bolster Social Security benefits.

The idea of ​​a US sovereign wealth fund at least has outside support. Hedge fund billionaire John Paulson said Thursday that he supports the US building a pool that exceeds the $1.7 trillion that Norway uses for investment.

“It would be wonderful to see America join this party and instead of having debt, have savings,” Paulson said in an interview with Bloomberg Television. “It would, over time, be bigger than any of the existing funds.”

Former Treasury Secretary Lawrence Summers, responding to Trump’s proposal, called the idea “incomplete.”

“It’s one thing if you’re Norway or the Emirates – which has this huge natural resource that’s going to run out that you’re exporting – to build up a large pool of wealth. But we have a large trade deficit. We have a big budget deficit,” Summers told Bloomberg Television Wall Street Week with David Westin Friday.

Summers said it was “hard to believe that putting aside a lot of funds for unspecified investments made in unspecified ways, where you don’t even know what it’s going to be called, is a particularly responsible proposition.”

Mixed support

Critics say the fund could be tapped for political projects of sitting presidents and could be difficult to finance — especially as the nation continues to run sizable deficits, contributing to a national debt that exceeds $35 trillion.

Jared Bernstein, chairman of the White House Council of Economic Advisers, told Bloomberg Television that he would be “very cautious about getting involved in any type of wealth fund.”

“It’s definitely something that we haven’t talked about in the meetings that we’ve been to,” he said

Conservative economist Douglas Holtz-Eakin questioned the need for a fund.

“What problem would that solve? In my mind, none. It has no merit, no matter who proposes it,” Holtz-Eakin said Friday. “All that would do is insulate that process from political scrutiny and oversight, and that’s the last thing we need.”

Trump, speaking to economic leaders on Thursday, said he envisioned the fund as a way to address lingering debt problems and said it would be financed by his plan to impose tariffs on all imports.

“We will be able to invest in state-of-the-art manufacturing facilities, advanced defense capabilities, cutting-edge medical research and help save billions of dollars in disease prevention,” Trump said. “And it’s many of the people in this room who will help advise and recommend investments for this fund.”