I'll be frank. The phrase "sovereign wealth fund" sounds boring, and given everything else going on right now, I'm sure you'd rather skip this column and go right to the one about the Republican who wants to put Donald Trump on Mount Rushmore or the latest on Elon Musk's takeover of federal systems.
But stick with me. I promise by the end I will get to a Leonardo DiCaprio movie, a Manhattan hotel, a 300-foot superyacht and a former head of state currently cooling his heels in prison.
Earlier this week, President Donald Trump signed an executive order directing two of his Cabinet secretaries to develop a plan for a sovereign wealth fund, basically the equivalent of a massive brokerage account for the entire country to invest some of its money for the future.
Most sovereign wealth funds are about as interesting as your 401(k) plan, but this is Trump we're talking about.
Just as we all have different investment strategies, sovereign wealth funds vary. Most of them are about as interesting as your 401(k) plan, and so far coverage has tended to treat Trump's vaguely worded proposal as something like Norway's government pension fund, which responsibly manages $1.7 trillion in assets, or the Alaska Permanent Fund, which pays annual dividends to residents from oil revenue.
But this is Trump we're talking about. The chances that a sovereign wealth fund he creates would simply be a boring investment vehicle to safeguard the nation's financial future are about as likely as Warren Buffett’s launching a memecoin.
So let's look at the worst-case scenario instead. In 2009, Malaysian Prime Minister Najib Razak established the 1Malaysia Development Berhad, or 1MDB, as a sovereign wealth fund with a $1 billion budget. He had the sole authority to sign off on investments and hire and fire board members and managers. One of his confidants, an adviser named Jho Low with no formal position in government, also played a key role.
What happened next was later described by the FBI as "the largest kleptocracy case" ever.
According to U.S. officials, money from the 1MDB wealth fund was transferred to shell companies and offshore accounts and spent on, among other things, a townhouse in London's posh Notting Hill neighborhood, a $126 million superyacht, the Park Lane Hotel in Manhattan and an Andy Warhol painting of a Campbell's Soup can. Money from 1MDB allegedly also helped fund the DiCaprio movie "The Wolf of Wall Street" — the plot of which, ironically, centers on a stockbroker who defrauds wealthy investors.
The scheme unraveled, in part because of news reports in local media and The Wall Street Journal and investigations by the FBI and other foreign law enforcement agencies. The ensuing scandal led to protests and the defeat of Razak's coalition in the 2018 elections. After he left office, hundreds of millions of dollars of his assets were seized, and he was convicted of corruption and sentenced to 12 years in prison, later reduced to six years.
So, where do we stand? While Trump has made a big show of signing executive orders, this is yet another example of an order that's just for show until Congress acts. The order specifies that the secretaries of commerce and treasury should come up with a plan in 90 days, which Trump will presumably then forward to Congress to add to the next budget.
Normally, I'd say that the details of how the fund is set up would matter a lot, but I'm not sure there's any way this could turn out well. A competently run sovereign wealth fund should be properly insulated from political meddling — you know, like the Federal Reserve, the FBI or the Treasury Department's payment system, three arms of the U.S. government that Trump has either said should be under his direct control or is actively trying to take charge of at the moment.
You only need to look at Trump's Cabinet to see the kind of obeisance that he expects to be paid.
Even if the management were designed to be walled off from the White House, you only need to look at Trump's Cabinet to see the kind of obeisance that he expects to be paid — and you only need to look at the Republican-controlled Senate to see how little pushback he would get to his appointments.
Beyond all that, there's the larger question of what this fund is for. The Biden administration considered a sovereign wealth fund to shore up domestic industries important to national security like energy and technology. Other countries use their revenue from resources like oil or rare minerals to support projects aimed at diversifying their economies. But so far, no one has explained exactly what the mission of this fund would be.
Trump said during a news conference announcing the executive order that it could be used to buy TikTok.
There's no economically strategic reason for the U.S. government to use its assets to purchase a social media app where you can watch MrBeast react to a video of a guy saying "banana" in increasingly ridiculous ways. The reason is entirely political. Trump suggested banning TikTok as a national security threat because of its Chinese ownership in 2020, then reversed his position while campaigning last year. Now that the app is facing a ban unless it's sold, Trump is looking for a political fix to a problem he created.
So the best-case scenario is that Trump would like a slush fund that he could use to get out of political jams, and the worst-case scenario is a massive corruption scandal. You don't need to watch "The Wolf of Wall Street" to know that a Trump-run sovereign wealth fund is a bad idea.
