Featured in the Australian Financial Review: A trillion-dollar sovereign wealth fund could be Trump’s grandest plan

There are plenty of big assets that could be sold to get the White House’s hopes in motion. Investors are already being told not to underestimate the impact.

With one trading session left of the first quarter of this year, it is safe to conclude the last three months have been nothing short of a train wreck for share market investors as they’ve tried to decipher what the Trump administration’s grand trade plan is and if it will actually work.

Fears that tariffs will bring higher prices and lower growth aren’t about to go anywhere anytime soon. That’s because April 2 is the long-heralded “Liberation Day”. That’s the day investors will learn more about the White House’s tariff plans. Order might finally replace chaos.

But there’s another announcement that could reshape the future of the global capital flows. It is one flagged by US President Donald Trump and something observers suggest could bring not only order, but cohesion and ambition. It is the creation of a new sovereign wealth fund.

Ian Harnett, of London-based Absolute Strategy Research, is telling his clients that they “should not underestimate the possibility, impact and potential opportunities” of a sovereign wealth fund established by the world’s richest economy by presidential decree.

Harnett has been meeting clients around the world over the past month, and it’s his research firm’s opinion on the significance of a US sovereign wealth fund that has raised the most eyebrows. He believes the sovereign fund may be a pre-emptive move by the US to prepare for a world in which access to global capital is curtailed as a result of its trade policies.

And he expects it will win bipartisan support because initial planning was conducted before Trump assumed power. Two Biden aides, Jake Sullivan and his deputy Daleep Singh, had been tasked with exploring the creation of a fund that would enhance and protect US interests at least six months ago.

The pair had engaged with the National Security Council on the size, structure, funding, leadership and direction for the proposed fund.

Trump himself also spoke of “the greatest sovereign fund of them all” in a speech back in September. At the time, he said it would “invest in great national endeavours for the benefit of all of the American people”.

When Trump took power his executive order called for Treasury secretary Scott Bessent and Commerce secretary Howard Lutnick to outline a plan within 90 days, with a view to the fund being operational within a year.

That order added these types of funds were “maintained by a diverse array of countries leveraging equally varied classes of national assets”. In the US, 23 states have their own funds with assets of $US332 billion ($527 billion).

By definition, a sovereign wealth fund is a state-owned vehicle that invests in stocks, bonds and real assets from airports to toll roads. So far, they’ve tended to come into being as mineral-rich nations reinvest the proceeds of their exports, or as large exporting nations recycle their surpluses by accumulating foreign currency reserves.

The world’s largest sovereign fund, Norway’s $US1.8 trillion Norges Bank Investment Management, fits that description. The United Arab Emirates, Saudi Arabia, Kuwait and Qatar also have giant sovereign funds.

Most of the world’s sovereign wealth funds – about 46 controlling $US5.2 trillion of assets – are backed by commodity proceeds.

But there are 53 funds controlling $US3.91 trillion – from Singapore’s Temasek to Britain’s National Wealth Fund – that are not. These funds have been backed by proceeds of asset privatisation or savings and are created for a specific national purpose. The Future Fund lives in this category.

The Future Fund, Australia’s sovereign wealth fund, was seeded with the proceeds of the Telstra privatisation and had been intended to offset the government’s pension liabilities. (It is commonly misconstrued as a government pension fund. But it’s really a pot of taxpayer money that is intended to grow faster than the obligations we’re on the hook for.)

The initial view about a potential US sovereign wealth fund was that it was tied to Trump’s intentions of creating a strategic reserve to buy cryptocurrencies. A common theory among crypto bugs is that the US intends to revalue some $US2 billion worth of gold it set aside in the 1930s from $US42.22 per ounce to $US3000, closer to the current price, instantly creating a $US780 billion windfall for the government’s use.

Bessent’s public comments suggest he isn’t all that fixated on the revaluation of gold reserves as a credible means to lower the deficit. But he has alluded to “the monetisation” of the government’s vast balance sheet of assets as a central tenet of the sovereign wealth fund plan.

In the US, the federal government owns vast tracts of valuable land, as well as the world’s biggest postal and rail services. There are also enormous financial institutions and utilities to sell. While the US is the home of free markets, the government is a relatively large owner and operator of assets that have long since been privatised in other nations.

The United States Postal Service, mortgage financiers Fannie and Freddie Mae, the Tennessee Valley Authority and rail operator Amtrak are all entities that could be sold. As for land, virtually the entire western part of the nation is publicly owned. A decade-old estimate valued the land at $U100 trillion, and its most likely doubled in value since then. The richest nation in the world could be about to hold a massive auction of public assets.

But there’s another angle. Lutnick, the Commerce secretary, has already said the government will look to take a cut on deals it does with the private sector and that could find its way into the sovereign fund.

It’s almost as though America is now in the hands of dealmakers that have a lazy balance sheet to work harder and counterparties to shake up for a better deal. Trump, Bessent and Lutnick mean business, literally.

That’s why Harnett and Absolute Strategy Research are telling their clients that “the scale of what could be achieved has the potential to change the investment environment for many investors”.

The broader issue, and one that big-picture macro thinkers are contemplating, is what Trump’s agenda means for the provision of global capital. We must surely be at the peak if trade barriers are going up.

In Australia, we remain rightly purist about our sovereign and pension capital. It must be invested wherever appropriate to maximise returns. Even a subtle change by the Albanese government – directing funds to invested in the national interest where possible – created an uproar.

But in future, capital may be scarcer and increasingly weaponised and deployed by other nations to serve their national interest. The world is changing and so, too, will priorities and objectives.

It’s worth pointing out that in the 1970s, sovereign wealth funds and foreign currency reserves didn’t really exist. It was Henry Kissinger who convinced the oil-rich Middle Eastern nations to recycle their oil proceeds into US Treasuries. Now the US is putting the gates up and capital is going to go elsewhere. More so, if more nations have to be more independent militarily they’ll spend more than they accumulate and invest.

That seems to be the grand bargain the US is making with the rest of the world – play by its rules or take your trade and your capital elsewhere.

But will it make the US and its citizens more prosperous? The world will no doubt watch and react with fascination and self-interest.

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