Sovereign Wealth Funds (SWFs): Opportunities or Threats for U.S. Fiscal Stability?

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Stephen R. Rolandi
August 8, 2025

Public finance courses typically focus on the economic, public policy and legal aspects of government intervention in a national, state or local economy. Course topics usually include: revenue collection; budget management; public expenditure; strategies for dealing with market failures; taxation policy; debt management etc.

A topic that has not received too much attention is the subject of Sovereign Wealth Funds (SWFs) which can be found in many nations around the world. Earlier this year, President Donald J. Trump (following up on a campaign pledge made last year) signed an executive order directing the Secretary of the Treasury and Secretary of Commerce to create a plan that would create an American SWF.

Prior to the beginning of the second Trump administration in January 2025 (“Trump 2.0”), the administration of President Joseph R. Biden had been working for several months on the design of a similar fund that would have provided monies to advance strategic interests such as technology start-up companies to enable the United States to compete more effectively with the Peoples’ Republic of China (PRC).

The establishment of such a fund is expected by some to have a significant effect on the U.S. Treasury. Given the applicability of SWFs to public finance, I believe this is a good time to examine this financial instrument potential revenue source; this is my topic for this month.

Definition of SWFs

One can define a sovereign wealth fund (sometimes referred to as a sovereign investment fund) as a state or publicly owned investment fund that invests in real estate and financial assets such as stocks, bonds, real estate, precious metals or in alternative investments such as private equity. Typically, SWF funds are invested globally.

The funding source for most SWFs is revenues from commodity exports or from foreign reserves held by a central bank. In some cases, the source of funding for a SWF is a nation’s (or state’s) assets that are invested for investment return and which may not have a significant role in financial management.

Proponents of a national SWF for the United States contend that such funds would promote the long-term financial health and international leadership of the United States and act as a type of shock absorber against adverse economic headwinds.

It should also be noted that some international financial experts regard the economic power inherent in SWFs as potentially having the ability to translate into global power politics in the future.

Origins of SWFs

While the origin of SWFs in an earlier form dates back for more than 100 years, the term “Sovereign Wealth Fund” was first used in May 2005 by economist and financial analyst Andrew Rozanov in an article entitled “Who holds the Wealth of Nations?” appearing in the Central Banking Journal.

In the last two decades, he has held numerous positions at UBS Investment Bank, Chatham House, Permal Group and the National Bank of Kazakhstan, and has edited two books on investing. SWFs were the first institutions to use sovereign capital in an effort to contain the financial damage in the early stages of the Fall 2008 financial crisis.

They were attractive as financial instruments to react quickly in that crisis as SWFs were able to participate more actively in the market. SWFs have become more popular in recent years.

Types of SWFs

There are several types of SWFs which can be classified as follows:

• Budget stabilization funds

• Savings of future generation funds

• Public benefit pension reserve funds

• Reserve investment funds

• Strategic development sovereign wealth funds also known as SDSWF

• Funds used to target relief for emerging or distressed industries

• Foreign currency reserve assets – these can be used for specific governmental purposes and/or to assist management of a currency’s trading power

Such funds can be used for projects dealing with investment in infrastructure, real estate, health care, industrial development and cash flow stability.

Size of SWFs

With the evolution of international financial markets, SWFs have had to balance the application of financial theory with complex world circumstances. As such, the volume (size) of SWFs worldwide has grown significantly. Ten years ago, total SWF funds under management were approximately $6.7 trillion. Currently, according to the International Forum of Sovereign Wealth Funds (IFSWF) and other groups, funds under management now amount to nearly $14 trillion.

The “top ten” countries or regions with the largest SWFs are:

1. Norway (government pension funds) – $1.738 T

2. PRC (China investment corporation) – $1.332 T

3. PRC (SAFE investment company) – $1.090 T

4. UAE (Abu Dhabi Investment Authority) – $1.057 T

5. Kuwait Investment Authority – $1.029 T

6. Public Investment Fund of Saudi Arabia – $0.925 T

7. Singapore GIC Private Limited Funds – $0.801 T

8. Indonesia Investment Fund (BPIDAN) – $0.600 T

9. Qatar Investment Authority – $0.526 T

10. Hong Kong Exchange Fund (HKMA) – $0.514 T

It should be noted that the United States’ Social Security Trust Funds (currently with about $3 trillion in assets) and Japan’s Investment Fund ($1.8 trillion) are not included in these rankings. Some American states such as Texas, Idaho, Utah and Alabama have smaller sized SWFs for limited purposes.

SWFs: An Assessment

There is a mixed record of the success of SWFs – many went under in some countries such as Algeria, Ecuador and Papua New Guinea due to political instability. Conversely, nations who are considered stable such as Denmark, Australia, PRC and Qatar have enjoyed success as these are considered stable politically.

SWFs seem to work best with countries who do not have large amounts of accumulated debt and where there is transparency and some degree of regulation and control. Former U.S. Treasury Secretary Lawrence Summers has argued that transparency and regulation of SWFs would be required in the U.S. to enable the United States not to lose control of assets to wealthier foreign nation fund entities.

Conclusion

The Biden administration gave some serious consideration to SWFs which now the Trump administration is proceeding to advance. My suggestion would be to approach SWFs with caution and more study as well as seek bipartisan support from both ends of Pennsylvania Avenue given the potential impact that SWFs may have on the U.S. economy. Time will tell if SWFs become a reality for the Federal government.

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Author: Stephen R. Rolandi retired in 2015 after serving with the State and City of New York. He holds BA and MPA degrees from New York University, and studied law at Brooklyn Law School. He teaches public finance and management as an Adjunct Professor of Public Administration at John Jay College of Criminal Justice (CUNY) and Pace University. Professor Rolandi was recently elected to terms as Trustee of NECoPA and the New Amsterdam History Center; he is President-emeritus of ASPA’s New York Metropolitan Chapter and past Senior National Council Representative. He has  served  on many  association boards, and is a frequent guest commentator on  public affairs and political issues affecting the nation and New York State. He can be reached at: [email protected] or [email protected] or  914.441.3399 or 212.237.8000 (messages).

 

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