Gulf sets the bar for proposed US sovereign wealth fund

Reuters

American officials working to establish a new US sovereign wealth fund demanded by President Donald Trump are sure to look to storied examples from the GCC for inspiration on governance, talent and partnerships.

Trump kept details to a minimum when he signed an executive order on February 3 laying the groundwork for the creation of the sovereign wealth fund. He gave the secretaries of the treasury and commerce departments 90 days to come up with practical plans to get funding, structure and investment strategies up and running within a year.

Plenty of questions remain, especially about how the entity will be funded. 

Commercial natural resources in the US are typically privatised. The nation runs both a trade and a government budget deficit, depriving Trump of the means by which sovereign investors are traditionally funded. Experts have suggested a mix of tax and tariff revenues, and savings from public spending cuts as an alternative.

The US president and his team may look to the Gulf for insights. Nine of the 25 largest sovereign wealth funds globally are located in the region, as well as six of the 10 biggest spenders in 2024.  

Trump hinted at Saudi Arabia’s Public Investment Fund as a possible model during a press conference announcing the push.

“The Saudi Arabia fund is on the large side, but eventually we’ll catch it,” he said.

PIF was established in 1971 as a domestically focused vehicle. It has expanded its horizons and ambitions since it came under the chairmanship of Saudi Crown Prince Mohammed bin Salman, in 2015, according to Global SWF. It has about $1 trillion worth of assets under management and aims to double that amount before the end of the decade.

But there are plenty of other good models across the GCC, says Paul Rose, dean of the law school at Case Western Reserve University in Ohio and a scholar of this type of state investment.

“There are a lot of lessons that can be learned by the US when they look at how Gulf funds have dealt with the question of, for example, trying to ensure that a fund is politically insulated and able to operate in a way that gives comfort to counterparties,” he says.

Rose tells AGBI that the little information that has emerged so far about Trump’s project suggests it may target US investment over foreign ones, more in line with the likes of Abu Dhabi’s ADQ.

“He has spoken of his desire to catalyse infrastructure development in the United States,” Rose says.  

Once the American fund becomes operational in a year or more, it is likely to seek tie-ups with Gulf counterparts

ADQ dates back to 2018, but acquired its present name and higher profile in 2020. It holds $250 billion in assets and has a mandate of fostering economic development in Abu Dhabi, although it has recently started investing overseas too.

Bahrain’s Mumtalakat, the Future Fund Oman and Kuwait’s newly established Ciyada are similarly geared toward supporting national development. 

One thing that may set the new US fund apart from the Gulf behemoths is the composition of management. The latter generally embrace a very international workforce. The former is likely to want as much domestic staffing as possible, given Trump’s patriotic and jingoistic rhetoric.

American officials are therefore more likely to rely on Wall Street’s deep pool of financial and banking talent than go on a poaching spree around the world.

“Maybe if there are US citizens working for Gulf funds, I could see them being asked to come back,” says Rose.

Exactly how much executives will be paid and whether compensation will be set on a traditional US government scale or more loosely, as for an arms-length quasi-public entity, remains to be seen. The outcome will have a big impact on the new fund’s ability to recruit people away from New York and other global financial centres, including those in the Gulf. 

• Vast Gulf wealth funds splinter to make targeted investments
• What Trump’s steel tariffs mean to the Middle East
• DeepSeek sell-off gives Gulf investors plenty to think about

Once the American fund becomes operational in a year or more, it is likely to seek tie-ups with Gulf counterparts, which already have a significant presence in the US. 

GCC sovereign wealth funds have a history of forming partnerships with state investors elsewhere in the world, according to Robert Mogielnicki, a scholar at the Arab Gulf States Institute in Washington. 

PIF jointly owns Saudi Global Ports Company with PSA International, a Singaporean operator that is in turn owned by state fund Temasek.

In January 2023, PIF went into partnership with Singapore’s other sovereign investor, GIC, in a nearly $1 billion investment in Korea’s Kakao Entertainment.

In November 2024, Mubadala Capital, the alternative asset manager of Abu Dhabi’s Mubadala, signed a tentative agreement with Temasek’s Seviora Holdings to explore joint investment opportunities in the UAE, Singapore and elsewhere.

Mogielnicki says any initial Gulf engagement or partnership with a nascent US sovereign wealth fund is likely to be more symbolic than substantive: “Closer engagement with established and professional SWFs in the Gulf can lend credibility to a new entity.”

Salar Ghahramani, an associate professor at Pennsylvania State University, Abington, who studies sovereign wealth funds, agrees that some symbolic partnerships may take place but says they are likely to remain just that.

“The underlying strategic interests are too vast, too deep to constitute any real incentive for cooperation on that level,” he says. “There might be some conversations along the way, a soft power exchange of notions or ideas, but meaningful cooperation is doubtful.”

Valentina Pasqauli is a senior editor at AGBI