Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 609

Should America follow Australia with a sovereign wealth fund?

If reports are correct that former Morgan Stanley technology banker Michael Grimes is set to lead President Trump’s planned U.S. sovereign wealth fund, or SWF, the administration has chosen a highly credentialled and qualified candidate. But that doesn’t make an SWF a good idea. On the contrary, such a fund would pose significant economic risks to American taxpayers and voters and would give future presidents - Democratic and Republican - unprecedented control over the U.S. economy and federal budget.

The US as an atypical candidate

America is about as far from the prototypical SWF nation as a country can be. Most countries with SWFs are smaller nations with substantial fiscal reserves such as Norway, Singapore and the United Arab Emirates. The U.S. has the world’s largest economy with large annual federal deficits and a national debt approaching $40 trillion - about $100,000 a person.

It’s always difficult to fund an SWF and generate consistent returns, but all the more so for a nation burdened by such large budgetary issues. An SWF will be effectively debt-financed so long as the U.S. is running large deficits. All money is fungible. Even if Washington ostensibly funds an SWF with revenue from taxes or tariffs, it comes at the cost of more debt because the U.S. government doesn’t have a budget surplus to invest. This would make an SWF the economic equivalent of a leveraged hedge fund. To generate positive returns for Americans, it would have to achieve sustained risk-adjusted returns exceeding the government’s borrowing rate. That would be exceptionally difficult, especially over the medium and long term.

An American SWF would distort markets and invite political interference. Governments have a poor record of picking economic winners, as seen in failed investments like Solyndra and Fisker Automotive. Government investment funds also tend to drift beyond their original mandates due to misaligned incentives. A prime example is Australia’s Future Fund.

Australia is a red flag

Established in 2006 to finance the country’s unfunded public pension liabilities by 2020, the Future Fund has yet to allocate a single dollar for this purpose and is unlikely to do so any time soon. The fund either reinvests its returns or spends it on remarkable administrative costs. The fund’s staff includes four people who in fiscal 2023-24 made more than a million Australian dollars a year. Meanwhile, government pension liabilities continue to burden taxpayers, costing billions annually while Australia’s government debt keeps rising.

Although the Future Fund’s returns have generally exceeded borrowing costs, they have lagged behind private counterparts; more so when accounting for the fact that being government-owned exempts the Future Fund from taxes other funds have to pay. Australian taxpayers would have been better off with lower taxes and the freedom to invest or consume as they saw fit.

The flawed justification for keeping the Future Fund even as debt continues to accrue is the mistaken belief that it generates 'free money'. Proponents argue that as long as returns exceed borrowing costs, the fund should continue indefinitely. By that logic, the U.S. government could simply borrow trillions, invest the money, and eliminate taxation altogether. But money is never free and past performance is no guarantee of future performance. If returns are insufficient, taxpayers will be significantly worse off.

The greatest danger of an SWF is political interference and cronyism. The Future Fund is Australia’s third-largest investment fund when measured in total assets. This affects asset prices and distorts markets. An American SWF would be even more distortive, potentially becoming the world’s largest institutional investor. This would give the federal government enormous leverage over domestic and global markets, enabling it to manipulate markets, businesses and investments.

Politicians have already attempted this in Australia. The Labor government recently attempted to alter the Future Fund’s investment mandate to ensure that it 'must' have regard for government priorities. Such changes would affect investment decisions and influence the corporate governance and strategic direction of private companies in which the fund has invested.

A political plaything?

If BlackRock’s ESG focus is controversial, imagine the potential for politicians to use an American SWF as a political tool. Even if this now appeals to some Republicans, they should picture what it would mean under a Democratic administration. The rapid fluctuations in mandates alone would cause dangerous market instability and uncertainty. Every four years could bring new demands, leaving investors and businesses with limited ability to make medium- or long-term plans.

A president who can leverage the government’s balance sheet strategically to influence private businesses would circumvent congressional authority and further expand executive power. And it would undermine the constitutional separation of powers by weakening Congress’s exclusive control over federal spending.

In Federalist No. 69, Alexander Hamilton stressed that the president shouldn’t have unilateral control over commerce or the economy. Establishing a U.S. sovereign wealth fund would represent a dramatic shift from this principle, granting the president a previously unimagined authority more akin to that of a monarch - an outcome America’s Founding Fathers never intended.

 

Dimitri Burshtein is a principal at Eminence Advisory.

 

  •   30 April 2025
  • 2
  •      
  •   

RELATED ARTICLES

The 2020 US presidential elections

Credit cuts, rising risks, and the case for gold

Tariffs are a smokescreen to Trump's real endgame

banner

Most viewed in recent weeks

Australian stocks will crush housing over the next decade, 2025 edition

Two years ago, I wrote an article suggesting that the odds favoured ASX shares easily outperforming residential property over the next decade. Here’s an update on where things stand today.

Australia's retirement system works brilliantly for some - but not all

The superannuation system has succeeded brilliantly at what it was designed to do: accumulate wealth during working lives. The next challenge is meeting members’ diverse needs in retirement. 

Get set for a bumpy 2026

At this time last year, I forecast that 2025 would likely be a positive year given strong economic prospects and disinflation. The outlook for this year is less clear cut and here is what investors should do.

Meg on SMSFs: First glimpse of revised Division 296 tax

Treasury has released draft legislation for a new version of the controversial $3 million super tax. It's a significant improvement on the original proposal but there are some stings in the tail.

The 3 biggest residential property myths

I am a professional real estate investor who hears a lot of opinions rather than facts from so-called experts on the topic of property. Here are the largest myths when it comes to Australia’s biggest asset class.

Property versus shares - a practical guide for investors

I’ve been comparing property and shares for decades and while both have their place, the differences are stark. When tax, costs, and liquidity are weighed, property looks less compelling than its reputation suggests.

Latest Updates

Investment strategies

Building a lazy ETF portfolio in 2026

What are the best ways to build a simple portfolio from scratch? I’ve addressed this issue before but think it’s worth revisiting given markets and the world have since changed, throwing up new challenges and things to consider.

Investment strategies

21 reasons we’re nearing the end of a secular bull market

Nearly all the indicators an investor would look for suggest that this secular bull market is approaching its end. My models forecast that the US is set for 0% annual returns over the next decade.

Property

13 million spare bedrooms: Rethinking Australia’s housing shortfall

We don’t have a housing shortage; we have housing misallocation. This explores why so many bedrooms go unused, what’s been tried before, and five things to unlock housing capacity – no new building required.

Investment strategies

Market entry – dip your toe or jump in all at once?

Lump sum investing usually wins, but it can hurt if markets fall. Using 50 years of Australian data, we reveal when staging your entry protects you, and when it drags on returns. 

Investment strategies

The US$21 trillion question: is AI an opportunity or excess?

It has been years since the US stock market has been so focused on a single driving theme, and AI is unquestionably that theme. This explores what it means for US and global markets in 2026.

Economy

US energy strategy holds lessons for Australia

The US has elevated energy to a national security priority, tying cheap, reliable power to economic strength, AI leadership, and sovereignty. This analyses the new framework and its implications for Australia.

Strategy

Venezuela’s democratic roots are deeper than Trump knows

Most people know Maduro was a dictator and Venezuela has oil. Few grasp the depth of suffering or the country’s democratic history - essential context as the US ousts Maduro and charts Venezuela’s future. 

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.