INVESTORS should pay close attention: State-backed capital is no longer theoretical. It is being deployed in semiconductors, digital assets, and even major technology platforms. Recent news that the US government may take a 10 per cent stake in Intel underscores how quickly the idea is moving from concept to concrete deals, raising urgent questions about how far state capital will reach into the private sector, and its implications.
Since President Donald Trump announced the establishment of a US sovereign wealth fund (SWF) in February, it has fuelled both expectations and controversies. What could a US sovereign wealth fund mean for markets and investors? It could alter the balance between state and private capital by de-risking strategic projects, legitimising new asset classes, and attracting global co-investment into critical industries.
Many experts are calling for a formal, legislatively grounded US sovereign wealth fund such as Norway’s Norges Bank Investment Management. But the Trump administration has taken an ad-hoc path, using executive power to direct capital into strategic sectors.
Can a country that runs persistent deficits really build one of the world’s biggest sovereign wealth funds? Trump’s unconventional approach suggests yes. If successful, it could redefine the SWF model.
How the US is redefining the sovereign wealth fund
To see why this approach is so unconventional, it helps to compare it with traditional sovereign wealth funds. A sovereign wealth fund is a state-owned investment fund that manages a country’s financial assets, typically derived from surplus reserves, natural resource revenues, or trade surpluses. These funds are generally managed by a country’s ministry of finance, a central bank, or a specialised government agency.
But under Trump’s executive order, America is carving out an alternative SWF path, one that is distinctly decentralised and industrial strategy-driven. Far from displacing private capital, it is increasingly proving to be a powerful “crowd in” catalyst for public-private investment partnerships.
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De-risking projects and crowding in capital
Nowhere is this more evident than in the Department of Defense’s (DOD) US$400 million equity investment in MP Materials, the only rare-earth producer in the United States. Under the Defense Production Act, the Pentagon is becoming MP Materials’ largest shareholder, with a potential 15 per cent stake and long-term offtake agreements to buy 100 per cent of the magnets made at the company’s new facility.
This investment enables the United States to secure critical mineral flows, countering China’s dominance in this space. The DOD’s commitment has attracted US$1 billion in private financing from JPMorgan Chase and Goldman Sachs to build MP’s new “10X” magnet manufacturing facility in Texas.
Wall Street followed because the US investment de-risked the project with guaranteed procurement and revenue certainty. The same playbook is now being tested in the digital asset space. In March, the administration announced the creation of a US strategic Bitcoin reserve, which was seeded with over US$5 billion Bitcoin seized in law enforcement actions and set to be supplemented by budget-neutral acquisition strategies.
Another case at the intersection of politics, technology, and capital markets is TikTok. Executive orders have granted TikTok a reprieve from a sell-or-ban order, and the administration has signalled interest in taking a stake through golden shares, granting veto power over key corporate decisions.
Global parallels and key differences
Although these US moves may look novel, similar strategies have been used in other advanced economies, including Germany’s use of its sovereign fund KfW. For instance, the 50Hertz transaction in 2018 saw KfW orchestrating an investment to prevent State Grid Corporation of China from acquiring a stake in a critical utility infrastructure.
Furthermore, it is the general practice of global sovereign wealth funds to seek both strategic industrial promotion and financial returns in their investments. The sovereign capital could avoid crowding out and unlock private capital when serving as a co-investment platform.
What sets the US approach apart is that the proposed sovereign wealth fund is a decentralised, transaction-driven model. With multiple agencies leading strategic investments, this federated approach departs from traditional SWF orthodoxy. Another distinguishing feature of the US approach is its reliance on foreign capital tied to tariff agreements.
Foreign capital and tariff revenue
The bigger components of the US sovereign wealth fund are now coming from foreign capital as part of the tariff agreements with global nations. This week, the administration announced a US-Japan Strategic Trade and Investment Agreement, and Japan has pledged to invest US$550 billion to rebuild and expand core American industries, including semiconductor manufacturing, research, and pharmaceutical production. It could mark the beginning of co-investment partnerships with global sovereign fund peers.
The US has asked South Korea to help create a manufacturing cooperation enhancement fund to finance Korean firms expanding production in the US. Finally, as part of the US-European Union trade deal reached earlier in August, EU companies have expressed interest in investing at least US$600 billion in various sectors in the US by 2029, according to the European Commission’s explanation.
The road ahead: Strategic sectors and risk
Looking ahead, the central question is how this decentralised model will shape strategic sectors and market risk. It is emerging as a platform for co-investment in politically sensitive areas, guided by governance protocols. For investors, the test is whether it reduces risk and creates opportunity, or whether political involvement complicates capital allocation.
Stargate, the US$500 billion AI data infrastructure initiative led by OpenAI and SoftBank, could find the US sovereign wealth fund a crucial partner. The White House’s “Winning the AI Race” plan calls for fast-tracking permits for large-scale data centres and energy supply. Yet six months after its launch, Stargate is struggling to gain traction and may be scaled back, despite a US$30 billion a year, 4.5 GW partnership with Oracle. Long-term US SWF support could reduce risk and attract private capital.
Some AI chip-related funding is already being directed to the US sovereign wealth fund, and Washington may continue to draw on new revenue streams. In August, President Trump negotiated an agreement allowing Nvidia and AMD to resume certain semiconductor sales to China in exchange for a 15 per cent government cut.
Taken together, the US sovereign wealth fund is shaping up unconventionally. It is not a single legislated fund but a strategy driven by executive power: state capitalism with American characteristics.
For investors, the key is that state-backed capital is already reshaping sectors from semiconductors to AI to digital assets, influencing both risks and opportunities across markets in the years ahead.
The writer, CFA, is an investor, attorney, and author. He is a partner of Dragon Global, an AI-focused family office, executive director of the Global Public Investment Funds Forum, and adjunct professor of sovereign investors at New York University’s School of Law.
This is an adaptation of an article that first appeared on CFA Institute Enterprising Investor: https://blogs.cfainstitute.org/investor/
