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The writer is chief executive and co-chief investment officer at Eurizon SLJ Capital
Donald Trump’s proposal to create a “Maga SWF” has attracted some scepticism since its announcement in the rush of executives orders on his return to the White House. But it should be taken seriously — it could become the largest and the most strategically important sovereign wealth fund in the world.
SWFs have been in existence since the 1950s but have grown rapidly as a global force in markets and economies in recent years since I started tracking them in the mid-2000s at Morgan Stanley. Their collective size has swelled from $2.5tn in 2007 to more than $13tn now.
It is hard to know just how big the Maga SWF could be at launch. There are not a lot of details. But Trump, of course, is not short on ambition. Last week, he pointed to Saudi Arabia’s Public Investment Fund, one of the biggest SWFs in the world with assets of $925bn, as a benchmark. “The Saudi Arabia fund is on the large side, but eventually we’ll catch it,” he said.
It must surely rankle with Trump that Norway has the biggest fund with $1.8tn of assets. Just for comparison, the US economy is 60 times that of the Scandinavian country. But over the long term, it is not unreasonable to project a Maga SWF overtaking the Norwegian fund, which was set up in 1990 and now on average owns 1.5 per cent of every listed company worldwide. And the launch size might be bigger than sceptics expect. A $200bn fund, say, would not the move dial much for the US.
The US government is cash-poor but asset-rich. We estimate on a conservative basis that the US federal government’s total assets including land, buildings and natural resources would be more than $100tn and potentially much higher depending how it is calculated.
Funding should not be a problem for the US. The US is also special: it is the issuer of the hegemonic global reserve currency. While most SWFs have excess foreign reserves (ie dollars) to invest, the US can print, issue or borrow its own currency. I disagree with commentators who argue that the US cannot have a SWF because it is cash-poor.
Treasury secretary Scott Bessent has said the Trump administration is “going to monetise the asset side of the US balance sheet for the American people”. He has many financing options. There has been talk of various ways to deploy the US’s financial assets into seed capital for this project. Alternatively, the US could issue a “Maga bond” that runs parallel with US Treasuries, backed by dormant non-financial public assets — that is, an asset-backed bond. The US can be creative in the design of the funding modalities because of its ample assets.
The Maga SWF will look more like China’s Silk Road Fund or Singapore’s Temasek. It will probably not just invest in a diversified portfolio of publicly traded securities, but target strategic, high-growth ventures such as data centres, artificial intelligence projects, tech companies and US large caps. It may also support overseas projects to extend US influence, similar to the Silk Road Fund or the US’s own Marshall Plan of 1947. Its prospective geostrategic emphasis means it may be seen as spurring a form of state capitalism.
The potential cumulative investment returns can be huge. Imagine, if you like, it reaches $2tn of assets under management. If it matched the roughly 10 per cent annualised total return of the S&P 500 index in the last 20 years, the fund could grow to $13.4tn in 20 years, illustrating the power of compounding.
Of course, the actual returns could be lower or higher than 10 per cent. I’m merely demonstrating what is possible. Given the likelihood that public debt will also probably rise over this time, it is critical for the US to generate additional financial resources to help discharge the mounting public debt.
The US has always commanded a credibility premium in its sovereign bonds because of the status of the dollar and the US Treasuries. Why should it invest in its own haven asset at a lower yield than the returns it could get elsewhere? By the way, it’s hard to justify the US Social Security Trust Fund — which pays out social security benefits — being invested solely in Treasuries instead of having some exposures to US equities.
SWFs vary in their funding sources and investment strategies but almost all have been success stories rather than failures. The downside risks to this project seem modest and manageable. And with substantial upside potential, I don’t understand why the US should not pursue a Maga SWF.
If this project is prosecuted properly, 40 years from now it may well be acknowledged that the Maga SWF might be one of Trump’s more consequential actions.
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