Is a U.S. Sovereign Wealth Fund a Good Idea? With William Megginson

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Kate (00:00):
Hi Veljko.

Veljko (00:01):
Hello, Kateryna

Kate (00:02):
What are we talking about today?

Veljko (00:04):
Well, we are welcoming Bill Megginson to our episode
on Sovereign Wealth Funds.

Kate (00:10):
We always start with the main question.
So Veljko what is the main question?

Veljko (00:15):
Well, I'll give you just the ten second background
to introduce the main question.
On February the third, 2025, the WhiteHouse posted a one page order by Donald
J. Trump asking for the Department of theTreasury and the Secretary of Commerce
to come up with a plan within 90 dayson how to establish, fund and implement

(00:40):
an American Sovereign Wealth Fund.
So today we have Bill here totalk about, first of all, what are
Sovereign Wealth Funds, and to give ourlisteners a broad idea of this topic.
But the core question that we are gonna beasking today is, is a US Sovereign Wealth
Fund a good idea in the first place.

(01:00):
And a lot of background is needed here.

Kate (01:03):
Yes, that's right.
And we're gonna talk about what isthe Sovereign Wealth Fund and whether
the US needs a Sovereign Wealth Fund.

Veljko (01:11):
We really could not have a better person with us
to talk today about SovereignWealth Funds than Bill Megginson.
He is both extremely knowledgeableabout the topic, but also somebody who
always has something interesting tosay and he's a pleasure to listen to.
So I look forward to this episodeand to this conversation, and I hope

(01:33):
our listeners will enjoy it as well.
Welcome to Questions in Finance,

Kate (01:51):
a podcast where we translate academic mumbo jumbo to answer
interesting questions in finance.
I'm Kate Holland.

Veljko (01:59):
And I'm Veljko Fotak.
Kate and I met when we were PhDstudents at the University of Oklahoma.

Kate (02:05):
Today we're university professors and we spend our days
teaching and researching companies,markets, and all things related.
Let me introduce Bill.
Bill is a very close friend of bothVeljko and I because he was our
advisor when we were PhD students.
And in a way we met through Bill.

(02:27):
But while on the personal side, forus, this really means a lot, Bill is
a an extremely accomplished person,and I'm not gonna be able, I'm just
gonna say it straight out, I'm notgonna be able to list all of his
accomplishments, but I would like ourreaders to get a glimpse into who Bill
is, in terms of research and as a person.

(02:47):
I'm gonna start at a strange point.
He's a chemist who ended up becominga finance professor, which is already
extremely rare, but it tells youthat he knows a lot about, things
in the energy industry, for example.

Veljko (03:00):
And to be clear, if I have this down correctly, Bill has a BS degree in
chemistry from Mississippi College, an MBAfrom Louisiana State University, and a PhD
in finance from Florida State University.

Kate (03:16):
His full title is Professor and Price Chair in Finance at the
University of Oklahoma, MichaelF. Price College of Business.
What's extremely impressive is that,back in 2010, Bill received the highest
University of Oklahoma research prize,which is called the George Linn Cross
Research Professorship, and that isan extremely rare title and carried by

(03:37):
the most respected researchers at theUniversity of Oklahoma and in general.

Veljko (03:42):
And you might wanna mention Kate, that Bill is co-editor of the
Journal of International BusinessStudies or Jibs as it's known in our
profession, which is relevant to aconversation about Sovereign Wealth Funds.

Kate (03:59):
More specifically and practically unlike many in our profession who
write, but don't do, Bill actuallyis well known for his research on
privatization, and he has participatedand helped as a voting member in a
Ministry of Economics and Finance GlobalAdvisory Committee on privatization

(04:19):
in Italy, when they were goingthrough their various privatizations.
So he is both a writer and a doer becausehe puts what he writes about to work.
Besides this, he has,been a visiting professor.
He has represented multipleother universities and countries.
For example, he's visited theUniversite-Paris Dauphine.
He has also been a Chaired Professorin Finance at the King Fahd

(04:42):
University of Dhahran, Saudi Arabia.

Veljko (04:45):
Kate, at that point you might wanna mention, Bill has been affiliated
with Duke University, VanderbiltUniversity, the University of Zurich,
the University of Amsterdam, BocconiUniversity, I'm sure I'm forgetting some.

Kate (05:00):
Bill has lived in many countries.
Our listeners can thinkabout a number in their head.
85 countries.
While he visited over 85 countries, hehas lived in Spain, Pakistan, France,
and Saudi Arabia, of course, UnitedStates for an extended period of time.
We are talking to somebody who hasa real perspective from having seen

(05:22):
how governments, organizations,and sovereign wealths funds, what
we're talking about today, is run,internationally, not only in the United
States, he doesn't only write about it,he actually goes and sees it firsthand.
I can keep going on for probably awhole episode talking about build
accomplishments, but Bill, we arereally glad to welcome you again to us.

(05:43):
Welcome, Bill.

Bill (05:44):
Thank you.
Thank you so much, Kate, Veljko, thisis, it's a pleasure to be here, and thank
you for that wonderful introduction.
These are two of my favorite all timesstudents, co-authors at top journals.
Some of the best publicationsI've ever had were with these two
and it's been immensely fun towork with them all these years.
And they were both my researchassistants at the same time, and
I've watched them over the years andwith, with the pride, almost like

(06:07):
a father, but also as a co-author.
So, it's great to be with you, Kate.
Thank you very much.

Kate (06:11):
Thank you.

Veljko (06:12):
Kate has done a fantastic job at introducing Bill, but I just wanted
to throw a couple of numbers there.
Bill's articles have been downloadedover 66,000 times from the
Social Science Research Network.
Bill has been cited over23,000 times on Google Scholar.
His article on privatizations, hissurvey article on privatization is

(06:36):
the eight most widely cited financearticle published since the year 2000.

Bill (06:41):
Thanks.
But you know, if you, since you broughtit up, I guess I need to update that.
It just passed 80,000 SSRN downloadsand almost 29,000 Google Scholar sites.

Veljko (06:52):
But who's counting right?

Bill (06:53):
Who is counting?
I, that, that was only as this morning.
So I, who knows if it's changed.

Veljko (06:58):
I love the fact that you check it only once a day, right?
But, so, from our personal pointof view, Bill, we owe you a lot
professionally, and neither Kate or Iwould be here today, as professors
of finance had not been for yourguidance and mentorship but even more
we would not have met each other.
So we owe you professionally,we owe you personally.

Bill (07:20):
Yeah.

Veljko (07:20):
And by all means.
Thanks, thanks for taking thetime to talk to us about...

Kate (07:23):
we have many stories that we can tell, but we'll try to
concentrate on Sovereign Wealth Funds.

Bill (07:29):
We need to talk about Sovereign Wealth Funds here.

Kate (07:30):
So I am gonna disclose that I'm probably the least knowledgeable person
in this podcast about Sovereign WealthFunds, what I've written and the research
I've done deals with more generalgovernment investors, like government
owned banks, state owned enterprises,and of course Sovereign Wealth Fund.
So I've looked at Sovereign Wealth Fund asone of the government investors while Bill

(07:53):
and Veljko have written multiple papersand have done multiple media appearances
on Sovereign Wealth Funds specifically.

Veljko (08:03):
I don't want to jump the gun too much, but I do
wanna put you on the spot, bill.
With just a straight question.
If we did come up with a scale of oneto 10 before we go into the nuance,
before we go into the details, on ascale of one to 10, where 10 absolutely
brilliant idea sliced bread, one terribleidea that should never be considered.

(08:24):
Where does a US SovereignWealth Fund rank?

Bill (08:28):
About a three?
It's a bad idea, but it may bea bad idea whose time has come.
That's what I'll, I'll give you,try to give you a nuanced answer.
It should not be done.
I don't think it will be done, but there'scertainly a chance that it could happen.
And if it does happen, thereare ways that it could be, if
not actually value increasing orincreasing for the US, less damaging.

(08:48):
But my basic answer is that the UnitedStates does not need a Sovereign
Wealth Fund, it would probablyend up being far too politicized
the way that it's being proposed.
But there are some, particularly if you'rethinking in terms of strategic benefits
to the US, that there are things thatcould be done with a Sovereign Wealth
Fund that could not be done otherwise.

Kate (09:08):
So, I want to start firsthand What's a Sovereign Wealth Fund?

Bill (09:12):
Sovereign Wealth Fund is a government owned investment fund
that makes commercial investmentsmostly internationally in
pursuit of a commercial return.

Kate (09:19):
Let's say I don't, I know a little bit about Sovereign Wealth
Funds, obviously, but let's talk aboutwhat is a Sovereign Wealth Fund, like,
how they're set up, which countrieshave them, and what do they invest in?
What is a typical Sovereign WealthFund, as perceived out there?
And then we're gonna talk about what wouldthe US Sovereign Wealth Fund look like?
Would it look like a typicalSovereign Wealth Fund or not?

(09:40):
So what, what's a typicalSovereign Wealth Fund?
What are some of thecharacteristics, Bill?

Bill (09:44):
They're really two basic types.
The classic ones starting with theKuwaiti Investment Fund in 1950s, but
really the Abu Dhabi Investment Authorityand Norway's Global Investment Fund are
government owned pools of investmentcapital earned from oil exports, basically
almost always big oil exports whereyou have tremendous surpluses and a

(10:04):
small population in your home country.
So you have these huge surpluses inmany billions of dollars in dollars
that you could not really invest inyour home economy or you'd have the
mother of all asset price bubbles.

Kate (10:17):
Can I repeat it?
If you would invest it in yourown economy, you would have let's
say a big asset price bubble.

Bill (10:24):
Enormous.
The quickest way to see that, wouldbe, Abu Dhabi has 400,000 citizens.
The population is two and a halfmillion, but most of 'em are expats.
So 400,000 Abu Dhabi citizens,they produce 2 million barrels
of oil a day, at $80 a barrel.
Their problem is what would youdo with all that money, right?

(10:45):
So, if they tried to invest thatdomestically... or Norway with 4
million people, and, let's say $60billion a year of oil revenue, their
Sovereign Wealth Fund is 1.8 trillion.
If you tried to invest that in Norway,again, you would bid up the price
of everything and it would explode.

Kate (11:00):
Let me scale this up for our listeners, 4 million people, which is
what we're talking about in Norway.
This is half of New York City.
The whole country.

Bill (11:08):
Yeah.

Kate (11:09):
When we were talking about the previous number, 400,000, we can think
about a town like Tulsa, Oklahoma.
Or perhaps Albuquerque, New Mexico.
Both of those towns themselves arebigger than 400,000, so just wanted
to bring some scale into that.

Bill (11:23):
True.
It's absolutely enormous.
Many of these countries, oil exportingcountries have a lot of reserves.
Even Saudi Arabia is, I thinkit's, 15 million domestic and 15
million expats of roughly 30 millionpeople, but they produce 10 and a
half million barrels of oil a day.
Over a hundred billion dollars a year.
They cannot invest allthat, even in Saudi Arabia.

(11:44):
They're trying and they'rewasting a great deal of money
doing it, but they just can't.
So you have to invest internationally.
That's one category.
They come by different names, butessentially there's a savings funds.
They have excess reserves indollars that they need to invest
internationally for a number of reasons,but at least partly financially,
they simply cannot absorb that.

Kate (12:04):
Right?

Bill (12:04):
So they invest internationally.
The Norway Fund owns one and a halfpercent of every stock in the world, on
average owns out one point a half percentof every listed stock in the world.
The other category of funds, China, Korea,Singapore, particularly Singapore, it's
the classic example are Sovereign WealthFunds built up out of export surpluses.
China doesn't, Singapore doesn't haveany oil, but have tremendous balance

(12:28):
of payment surpluses over many years.

Kate (12:30):
Let's translate that a little bit to our listeners.
Let's explain a bit moreexports and balance of payments.
Let's give it a simple example there.

Bill (12:37):
Okay.
I'll use numbers approximate,for point of reference.
You can divide a country as howinternational it is and connected
it is by exports to GDP ratio.
For the United States.
US exports are about 10% ofGDP, merchandise exports.
For Europe, they're 20 to 25 to 30%.
For Singapore, they're 170%.

Kate (13:00):
Wow.

Bill (13:01):
So this is a country that simply trades for a living.
It's a small population in oneof the world's greatest natural
harbors that is connected andhas been very, very successful.
So they've built up very large, they'veexported far more than they've imported.
Meaning that they're accumulating dollars.
The Singaporean dollar is tied tothe US dollar, so they really couldn't

(13:22):
convert it back into the local currency.

Kate (13:24):
So you have all of this money coming into your country because you are
exporting so many services and goods.

Bill (13:30):
Yes.

Kate (13:30):
And they're being purchased by other countries.
And so now this whole big pile ofmoney is coming into your country.
What do you do with that?

Bill (13:38):
What do you do with it?
In many ways the better exampleI should have used is China.
China has the second largestSovereign Wealth Fund and certainly
in aggregate, the largest totalamount of sovereign wealth funds.

Kate (13:48):
So China is number two and number one is Norway.
Is that right?
Norway?

Bill (13:53):
Yeah,

Kate (13:53):
So Norway, China, and the third spot is,

Bill (13:56):
Third is SAFE which is also China.
ADIA is fourth.
Abu Dhabi Investment Authority.
Kuwait is fifth.
Kuwait Investment Authority.
PIF, Saudi Arabia is the next one down.
It's big and it's growing veryrapidly, but it interesting, it didn't
really exist until a few years ago.

Veljko (14:10):
If you add up the Chinese Sovereign Wealth Funds, the
State Administration of ForeignExchange and CIC, they are bigger.

Bill (14:16):
Yeah, they're quite a bit bigger than Norway.
And at total Sovereign WealthFunds are right at $13 trillion.

Kate (14:22):
Wow.
The ranking is combined Chinese SovereignWealth Fund, Norway, Abu Dhabi.
And of course, startling thingabout , those, what I can think
about, China exports a lot.
So they have a lot of thisforeign money coming in.
Norway sells a lot of oil, giventhe small population of the country.
They have a lot offoreign money coming in.
Of course, the next two, Arab countries,they again sell a lot of oil, have

(14:45):
a lot of foreign money coming in.

Bill (14:47):
And, in all cases, they're in dollars.
Oil is traded internationally in dollars.
Most of the exportrevenues are in dollars.
So, China could take those exportearnings, convert them into renminbi,
the local currency, and invest locally.
But of course, if they did that amongother things, exchange rate would
just, the dollar would collapse versusthe renminbi, which they don't want.

(15:08):
So it's a way to recycle this moneyin dollars into the global economy.
And that's one of the reasons thata large fraction of Sovereign Wealth
Funds is invested internationally.

Kate (15:18):
So China is not going to take the dollars and change it into
renminbi and invest domestically.
I know you've mentioned it, but canyou just one more time explain that.

Bill (15:28):
One, it's their export surplus.
In other words, China has a problemwith over capacity in almost
every manufacturing industry wherethey're good, they're good, and
they've made historic investments.
They're earning far more frommerchandise exports than they import.
They import a lot, but they're earning,call it a $200 billion per year,
export surplus from merchandise, right?

(15:48):
So they can take that money and theycould reinvest it into property,
plant, equipment or factoriesin China, they don't need to.
They're already, at one point, I haven'tseen the numbers in the last couple
of years, but at one point the Chinesesavings rate as a percent of GDP was 48%.

Kate (16:06):
Right.

Bill (16:07):
The gross investment rate per GDP was 45.
Investing half of your economyfrom your own domestic savings.
And they're doing this for 40 years.
So they don't need to invest it.
In fact, their problem is overinvestment, over capacity.
For a variety of reasons, China,quite rationally in many ways has
three of the largest sovereign wealthfunds and collectively the largest

(16:28):
Sovereign Wealth Fund country.

Kate (16:29):
That's why they're trying to invest, not domestically,
but internationally and abroad.
That makes a lot of sense.

Bill (16:34):
One of the things that also leads to, when you're talking on
numbers on this scale, hundredsof billions of dollars a year.
There's not many placesthat can absorb that.

Kate (16:44):
I can think of one, one jumps into mind right away.

Bill (16:47):
It's not very adventurous money.
It's not funding development.

Kate (16:51):
So, the United States because of the liquidity of the market here, because
the market is so big and so liquid.
One thing to mention is, the United Statesstock market has been trading at the
highest PE multiples, ever in history.
And a lot of the money that's cominginto the US economy, is coming
from these Sovereign Wealth Funds.

Bill (17:10):
The US and Britain have always been the number one and two, in terms
that's just where they can investtremendous amounts of money, and
that's where, you have rule of law.
Now they can invest incertain things, right?
No country likes to have its domesticcompanies acquired by foreigners, so
they can't come in and buy companies,
in many ways, they're restricted inforeign direct investment into companies.

(17:33):
Now they can buy into the stock marketall they want and they can buy bonds
without any kind of political backlash.
But they can't make controllingmergers and acquisitions.
They can't acquire companies, becausethey're just politically... You
can imagine the outcry if a Chinesecompany tried to buy Boeing.

Kate (17:50):
And as you said, I'm gonna take you back to just what you said a minute ago.
You said, what's importantabout the US and the UK markets
is a rule of law, right?
And that's why everybody's investing here.
So can you explain what is this ruleof law and what do you mean by that?
Then why is it so important that USand UK have strong rule of law for
international money to flow in here?

Bill (18:09):
In general, most Western countries have established rules of law.
You don't have expropriation,you don't have politically
motivated seizures of assets.
Almost every major country now hasrules against foreign investment,
at least for ownership purposes.
But almost all western countriesallow portfolio investment and almost
anybody can buy, even Chinese, evenRussians can buy into the stock market

(18:33):
without any kind of real restriction.
Now, if they try to acquire a company,then they get into, we have c cfius,
Committee for Foreign Investment inthe United States, which has to rule
on sensitive foreign investment.
So they face a political problem.
If they try to do anything involvingcontrol acquisitions in the
company, they can make portfolioinvestments without any trouble.

(18:54):
The money is safe, it'snot gonna be seized.
They can get it out at any time.
They're not gonna face capital controls.
And over time financial marketshave grown almost exponentially and
there's absorptive capacity to usea wretched term, but also a very,
useful one, is virtually infinite.
You can absorb a tremendousamount of capital.

(19:14):
The total value of financial assetsglobally is approaching $400 trillion.
This capital market thatwe abstractly think about.
Is this enormous machine

Kate (19:26):
impressive?
400 trillion.
Let me throw in a few more numbers.
I think the US stock marketis about close to 40 trillion.

Bill (19:33):
It's about 45,

Kate (19:34):
The Norway Sovereign Wealth Fund is 2 trillion.

Bill (19:38):
Close.

Kate (19:38):
Apple has a market capitalization of close to 3 trillion, right?

Bill (19:43):
The scale of modern capitalism to the uninitiated, even to many
of the initiated is really fantasy.
What that means from an investment pointof view is that money can move around
the world and into and out of markets,the US particularly, instantaneously
at a scale that would bogle the mindof previous generations and it's safe,

(20:04):
you're not facing political risk.

Kate (20:06):
Not facing political risk.
I'm gonna come back to that point.
That's a good one.
But I want to first summarize beforewe keep going on, I think what we've
talked about so far, we've talkedhere about what is the Sovereign
Wealth Fund and really what purposedoes the Sovereign Wealth Fund serve?
Veljko can you summarize?

Veljko (20:21):
The main purpose of these funds is avoiding what, we teach our
students, is Dutch disease, right?
This idea that a large influx of foreignmoney driven by a balance of payment
surplus can overheat your economy.
Drive inflation and wages up.
Especially if your economy, as Bill wassaying, is too small to absorb things.

Kate (20:43):
Why are you being so derogatory to the Dutch?
What's up with the Dutch disease?

Veljko (20:47):
The term was coined by the Economist, so blame
those British journalists...

Bill (20:52):
It's also industrial.
In a sense, what's happening in Russianow is you have an economy that's
overheating because so much of theeconomy is being tilted towards defense.
That's where the jobs are,that's where the income is.
All other industries are losing workers.
Part of the Dutch disease is,as you said, is just the sheer
amount of foreign money coming in.
The second part is that itgoes into the wrong sectors or

(21:14):
you overinvest in the sector.
That's, in Dutch disease,it was natural gas in 1970s.
If you're in the oil sector in SaudiArabia, you live a very nice life.
But they have no other manufacturing.
Very few other services.
So that's part of the Dutch disease.

Veljko (21:27):
When I teach these to my students, the question I always start with is, why
does Saudi Arabia not have a tech sector?
But the interesting thing asyou were connecting this to this
imbalance on international trade...virtually every country that has a
Sovereign Wealth Fund has a surpluson the balance of payments...

Bill (21:43):
all the big ones do.

Kate (21:45):
We already talked about, what it means, but again, like surplus on
the balance of payments, it means thata lot of these countries have a lot
of foreign money coming into theircountry from outside because they're
selling a good or a service, usuallya good AKA oil, to other countries.
So they have this influx of capital.

Bill (22:04):
In dollars.
That's one of the key points.
They don't wanna convertinto local currency.
They wanna recycle it, byinternational investing.

Veljko (22:12):
Correct.
So we've been writing about SovereignWealth Funds for a while and the one thing
that you didn't mention, but, I thinkthere is still a lot of ambiguity about
what a Sovereign Wealth Fund even is.

Bill (22:22):
There is

Veljko (22:23):
Nobody has really developed yet, a proper, classification of the different
subtypes of Sovereign Wealth Funds.
And you're absolutely right, you startto be saying, there's an original model
of Soma found reinvesting surplus Forexabroad to, to avoid Dutch disease.
And clearly that model doesn'tapply to the United States, right?

(22:43):
Because we don't have a surpluson the balance of payments.
You and I have written a lot about othermotivations for having a Sovereign Wealth
Fund, and I think that for the most partwe've been fairly skeptical about those.
But I don't know if you want to speakabout some of the other reasons why a
country might have a Sovereign Wealth Fundand perhaps why some of those may or may
not be a good idea for the United States.

Bill (23:05):
Some of the early ones, and they still do this, are stabilization funds.
If you're a commodity dependent exporteconomy, during good times when prices
are rising, it's great, but then if youhave a collapse in the price of oil or
gold or diamonds or whatever the commodityis, you can be absolutely ruined.
It can be devastating.
So you have stabilization funds whereyou build up funds in this account during

(23:28):
the go-go times the good times, andthen when the price is turned against
you and the worlds in recession, youcan use a stabilization fund for that.
It's the state of Oklahoma, which allof us have a tie to, has a stabilization
fund, $4 billion stabilization fund.
Alaska has a very large fund.
Alaska's very much like SaudiArabia . It's an oil exporting state.

(23:49):
So you also have development fundsand there's the strategic funds.
If the US makes one,it'll be a strategic fund.
In fact, they should probably start, thosewho are in favor of it should probably
start calling it a US strategic investmentfund rather than a Sovereign Wealth Fund.
This is what it will be.
If they do it.

Kate (24:05):
Right.
Let's talk about the differencethere between the strategic fund
and a sovereign wealth fund, becausefrom what I understand, there's a
big difference in terms of investingabroad and investing domestically.

Bill (24:14):
If the US did a Sovereign Wealth fund, it does not
need it for stabilization.
We are trading in our owncurrency, we don't need that.
We're not surplus that we needto reinvest internationally.
We have perfectly deep marketsto allocate capital efficiently.
So none of the classic rationalesapplied to the US setting
up a Sovereign Wealth Fund.
What it would be done if it actuallyhappens, particularly if it's

(24:36):
done under President Trump, thiswould be a very political tool.
Many of these countries, particularlythose that are not western democracies,
Sovereign Wealth Funds are set upto get politics out, or at least
somewhat depoliticize it, get it outof the reach of the central government
or the elites of the country.
Make it into a separate thing.

(24:57):
You basically are trying toget politics out so that you're
investing the wealth of the countryfor the benefit of the country.
Now, if you had a strategic investmentfund would be essentially like
a national venture capital fund.
You would set up a pool of capital whereyou'd make risky, long-term strategic
investments, mostly internationally.

(25:17):
We have a very large domesticventure capital industry,

Kate (25:20):
Right.

Bill (25:21):
You need to duplicate that.
You would be competing, you would loseout to the private sector if you tried.

Kate (25:26):
It almost sounds to me like what we're talking about is China One
Belt, One Road, program, which investsmoney from China into international
infrastructure projects in exchange,in a way for political power, right?

Bill (25:40):
Yeah.

Kate (25:40):
Because when they build a bridge or a port somewhere and give that
country a loan, they're also gettingthe votes of that country at the NATO
level and at other international level.

Bill (25:51):
That's an interesting analogy.
I hadn't even thought about that.
But in many ways you're absolutely right.
Veljko and I have a paper onthe Belt and Road Initiative.
We've had this debate many times.
Is the Belt and Road initiative,foreign aid, financial diplomacy,
or strict commercial investment.
And in many cases it's all of theabove because these are mostly loans.
They're loans.
So they're commercial loans onabove market interest rates in

(26:12):
many cases with quite severe terms.
So they're commercial investments,but their main purpose is
essentially industrial diplomacy.
They want to have access to resourcesor for Chinese export goods.
So you build railroads tothe Chinese standard, right?
So you build telephone companiesto the Chinese standard.
In many ways, they're doingit for geopolitical reasons

(26:36):
as well as commercial.
The things that the US if it did havea strategic investment fund, which
they call a Sovereign Wealth Fund.
Some of the things that were coming tomind, they're gonna kick, try to kick, the
Chinese companies out of the Panama Canal.
They have ports at both ends.
Who could buy those?
You could basically do thosewith a sovereign wealth fund.
Ukraine if you're gonna, if theyever signed this mineral deal, it

(26:56):
would kind of be handy to have a USgovernment Sovereign Wealth Fund,
that could be the party to that.
If you're gonna do somethingwith Greenland, any kind of
investment Sovereign WealthFund would be ideal for this.
Anything with Gaza.
One of key points, the US investinvests a lot, it owns a lot of,
financial assets, but they tend to be ininfrastructure and kind of social things.

(27:21):
But they can't make equity investments.

Kate (27:22):
You know what worries me a little bit, and this is
coming from your guys' paper.

Veljko (27:27):
Bortolotti, Fotak, and Megginson, a Review of Financial
Studies published in 2015.

Kate (27:31):
What you are showing is that the Sovereign Wealth
fund managers, underperform.
So the returns that they provideon their investment are never
as good as the returns providedby other professional managers.
So what worries me initially about anytype of strategic investments abroad
or not, is that whatever's being donethere, I feel like the money can be

(27:54):
generated better through other meansby investing through other people,
not people who are running a SovereignWealths Fund or a strategic fund.
Just because what I know from yourwork and other work is that usually
the investments from sovereignwealths funds underperform.
Let's take an easy benchmark, S&P 500.
They underperform S&P 500.

(28:15):
A simple index.

Bill (28:16):
Except Norway of all the big ones, most of 'em don't even disclose.
Many of 'em don't even disclosetheir assets under management.
The Persian golf funds, many of 'emdon't even say how much assets they have.
They never, almost neverdisclose their returns.
Partly for secrecy, partly 'causethey're probably pretty bad.
The only ones who actually meet themarket are Norway the absolutely

(28:37):
most transparent, most index,fund oriented type of investment.
They don't even come closeto private investments.

Veljko (28:43):
Let's be clear, when it comes to Norway, they're perfectly diversified.
So they meet the market,they don't beat the market.
But I will pause here for a second.
I found this very interesting paper thatwe should be probably talking about,
actually aptly titled "The Case Againsta US Sovereign Wealth Fund." And one
of the author is, William Megginson.

(29:04):
But jokes aside, this is "TheCase Against a US Sovereign Wealth
Fund" Bill Megginson, Xin Zhou.

Bill (29:09):
Doris.
Doris Zhou.

Veljko (29:11):
And Robert Gholson.

Kate (29:13):
So even before you say something, I guess we are hearing
from multiple perspectives here.
Bill started out saying, maybe SovereignWealths Fund for the US isn't a good idea.
He has a paper suggesting some reasonsfor why it's not, yet we've heard
him also mention some possibilitiesfor the Sovereign Wealth Fund.
So we're getting differentperspectives here.
And they're coming from the same person.
This makes it a well-rounded discussionwhere we're looking at two viewpoints.

Bill (29:37):
It may be a bad idea whose time has come.
And if it was set up now, it wouldbe the Trump Sovereign Wealth Fund.
I voted for the guy, but I'm not surethat I really wanna have the kind of
politicized investment that he wouldmake, much less than, you know, he's
gonna be gone in less than four years.
So if you set up this hugekitty of money, the next
administration gets it too, right?

(29:58):
So it's gonna be a highlypoliticized investment fund
if it's a US fund, contrary towhat almost everything else is.
Almost all others aretuned to depoliticize.
A US investment fundwould be archly political.
Geopolitical.

Veljko (30:12):
It's interesting because it almost feels like politics is the point, right?
We've written a lot about how,and you correctly mentioned this,
one of the purposes of a SovereignWealth Fund was to allow governments
to pull money while insulating itfrom political interference, right?
Whereas I believe the Trump administrationhas been fairly open about "we want
this to be able to exercise politics,or to advance our policy goals." I was

(30:37):
mentioning your paper in particularbecause you have an interesting comparison
on historical returns of SovereignWealth Funds to public pension funds.
Is what you compare them to here.
And I believe the quote from yourpaper claims that from 2008 to 2020
Sovereign Funds had an average annualindustry alpha of 0.2% while public

(31:01):
pension funds had an annual industryalpha of one percentage point.

Bill (31:05):
That's true.

Veljko (31:06):
Even if you buy the idea that this might be a way for
intergenerational wealth transfer orfor intergenerational wealth savings.
And I always get a little bit skeptical.
I'm a believer in the Start Trek future.
I think that our children willhave, advanced technology, we don't
need to save for our children.

(31:26):
This idea that if you go back a hundredyears and you look at how people lived
a hundred years ago, the calories thatthey consumed, the life expectancy, the
idea that they should have sacrificedsomething for our future seems laughable.
But then of course when welook forward, our paternal and
maternal instincts kick in, right?
And we wanna leavesomething for our children.

(31:47):
But again, I'm not sure intergenerationalwealth transfer is a smart policy
goal, but, even if you put it asideand you assume that intergenerational
wealth transfer is what we wantto achieve, sovereign funds do
not appear to be the right tools.

Bill (32:01):
Yeah, that's true.
And one of the evolutions since I've beenworking on this for almost 20 years is
into looking at public pension funds.
And they're 25 trillion, they'reeven more than sovereign wealth.
Almost twice as much.
The difference is in a pensionfund, and this is kind of what
is the Sovereign Wealth Fund?
Norway's is called Global Pension Fund.
Or "Pension Fund Global." But thekey point difference between that

(32:23):
and a classic public pension fund.
I'm a part of the state ofOklahoma Public Pension Fund.
I'm part of the US Social Security Fund.
In both of those funds, the money is in myname, so if you're a pension contributor,
you are building up under your own nameand the money is built up, you draw
down later or it goes to your kids.
Sovereign Wealth Funds,there is no person attached.

(32:46):
The assets are not dedicatedto paying a single person.

Kate (32:50):
This already makes me have a knot to my stomach because having grown up
still in what was left over of the SovietUnion when I was, younger, is a scary
thing to me, when there's no name onsomething, that means nobody does the
work and nobody really cares as much.
And because that was the whole ideaof, this general pool of work that

(33:12):
everybody will contribute to, giventheir abilities, et cetera, right?
Except for then, nobody did.
So anytime that they hear any big sumsof money without a certain designation
of a name without the property right, Itgives me like a stomach churning moment.

Bill (33:28):
It should, I mean, that's where they're called wealth funds.
And sometimes they have the pension,but basically they're wealth funds.
They don't have a person's name.
They're not a person's pension.
TIAA CREF the largest,pension fund for educators.
And it's huge.
It's several, , I don't know ifit's a trillion yet, but it's many,
many hundred billions of dollars.
But it, for each one of ushave our own name on it.

Veljko (33:49):
But an anecdote that might please Kate, given her Ukrainian roots
and feelings, is that the typicalexample of a failed Sovereign Wealth
Fund, because of excessive politicalpressures is usually Russia, right?
Russia had a fairly sizable SovereignWealth Fund prior to invading Crimea.

(34:09):
And ever since the invasion ofCrimea in 2014, it's been running
down the SovereignWealth Fund to stabilize
the ruble and to provide support to the domestic economy.
So this is, where you don't haveNorway level checks and balances,
politicians are very tempted touse the Sovereign Wealth Fund...

Kate (34:26):
So this is interesting.
I mean, at least the thought that comesup in my mind is that a Sovereign Wealth
Fund can be used to stabilize yourown economy when the rest of the world
put sanctions on you because you areultimately staging war on another country
and trying to take their territory.
This is a very different lens forthe United States, of course, it's a

(34:47):
different economy compared to Russia.
But I never thought about the sovereignwealth fund that was used by Russia
as a way to protect themselvesfrom, a financial blockage, which
was used very much as a war tool toprevent atrocities that are ongoing.
So yeah, interesting shield.

Bill (35:05):
Russia thought they had built up a lot of money, several hundred
billion, over half a trillion dollars inSovereign Wealth Funds and in reserves.
But then as soon as they invade,they were surprised to see the West
basically froze their reserves.
So $300 billion thatthey thought they had.
So you can draw down.
And this happened duringthe pandemic, right?
Many countries did tap their sovereignwealth funds to stabilize the

(35:28):
economy or to bail out firms thatwere failing, but you can do that
any kind of an endowment, right?
You can draw it down until it's gone.
Then it's gone.

Kate (35:37):
Right?

Veljko (35:37):
I think you make a very interesting point, Bill.
The pandemic was a very beautifulexample of where Sovereign Wealth
Funds were used for domesticpurposes in many cases, right.
Russia... can you really use aSovereign Wealth Fund to protect
yourself from foreign pressure?
If you think about a Sovereign WealthFund in a typical, this is a foreign
investment vehicle or an investmentvehicle in foreign equities, then if

(36:00):
anything it makes you more vulnerable.

Kate (36:02):
I think what Bill was pointing out is that they weren't counting
on their assets being frozen.
They were counting onbeing able to use those.

Veljko (36:10):
But it's also true that the Russian Sovereign Fund was not a typical
sovereign fund because they actuallywere investing a lot domestically.

Bill (36:16):
We've always struggled with this.
Diego Lopez, who we both know,Sovereign Wealth Fund Global founder,
has a saying that once you've seenone Sovereign Wealth Fund, you've
seen one Sovereign Wealth Fund.
They're so different, andthey're morphing all the time.
But the key point is thatthey're owned by governments.
They're investment funds, typicallythey're wealth rather than debt.
Nobody's name is on the assets,and they're usually for some

(36:39):
kind of investment externally insearch of a commercial return.

Kate (36:43):
And those commercial returns usually are below that
of other professional managers.

Bill (36:48):
Ex post, they tend to be, but yeah, they say they're
looking for commercial returns.
I've always, again, Veljko and I've beendoing this on my 20 years, I have ruined
a lot of consulting opportunities overthe years 'cause I could never quite
resist the temptation to call them bigdumb capital they have huge sums of
money they're not very good at investing.

(37:10):
In some cases, particularly with the GulfFunds, in the early years, it was Emiratis
third son gets the sovereign wealth.
Now, Veljko and I have long advocated,because they are constrained to make
direct investments politically, theideal way for them to invest in the
West is through private equity funds.
And they have become huge, theyare now by far the largest limited

(37:31):
partners contribution to venturecapital, but especially buyout funds.
So they are, they're just enormous.
This is a way that you can soakup a tremendous amount of capital
into these funds, private equityfunds, which themselves often
are $20 billion funds or more.
They can make direct equity investmentsthemselves because they're American
or European funds, but they can befunded by Sovereign Wealth Funds.

Kate (37:54):
I think that's an interesting point that you're bringing up.

Veljko (37:57):
Kate, can I just emphasize this point Bill is making about
underperformance, because I thinkit's really important to understand
there are some real economicforces at play here that make
underperformance a feature, not a bug.
In many ways.
In the sense, first of all, thereare political difficulties in
paying private sector salaries.

Bill (38:17):
Yeah.

Veljko (38:17):
The managers of sovereign wealth are never compensated as well
as the managers of private wealth.

Bill (38:23):
By an order of magnitude.

Kate (38:23):
I see.

Veljko (38:24):
So they're already fighting with weaker talent.
Second, we noted the head countsdivided by assets under management at
sovereign wealth funds are a lot lower.

Bill (38:34):
Yeah.

Veljko (38:34):
And I don't remember the figures off the top of my head,
but again, the headcount divided byassets under management of Sovereign
Wealth Funds are a lot lower.

Kate (38:43):
So there should be more people hired to manage Sovereign Wealths Funds.

Bill (38:45):
The last time I saw the number for the Norway's fund, it was 400, I
think it's probably closer to a thousandtotal employees for 1.8 trillion.
Fidelity Investment Fund, aprivate company in the US has
80,000 employees for a similartotal assets under management.

Kate (39:02):
Wow.

Bill (39:02):
They can't be active managers.

Veljko (39:04):
And then there is the third part, which is something
that you Bill alluded to earlier.
There is this huge adverseselection component where, we
don't want Sovereign Wealth Funds.
We want domestic ownership.

Bill (39:16):
Every country wants that.

Veljko (39:17):
Correct.
We don't want a foreign entity,especially, we don't want a foreign
government owned entity comingand telling our companies what
to do, until things turns south.
2007, 2008, we were writing about it.
As soon as the global financial crisishit, we loved sovereign funds, right?
We opened the doors, so in many ways,they really suffer from this adverse

(39:37):
selection component where, we don'twant them when things are great and
when things turn south, we open thedoor, they come in and they become this
investor of last resort, and then we laughbecause their portfolios underperform.

Bill (39:51):
That's true.

Veljko (39:52):
And it's not entirely a fair assessment, but because of
these economic reasons, I think thisintergenerational wealth transfer
argument feels a little bit weak.
But at least I don't wanna putwords into other people's mouths.
But it sounds like thatwas most of our evidence.

Bill (40:06):
It could be a rationale.
Norway, Abu Dhabi, theyhad to invest abroad.
They had to invest for the future.
They had to invest.
And so how do you justify that?
Well, we're doing it, we'reinvesting the wealth for future
generations, which is chicken and egg.
Is it, was that really the rationaleor were they just basically
forced for financial reasons,flow reasons they had to invest

(40:27):
internationally, keeping the dollars.
And they did.
So some of them arequite easy to understand.
If we're getting to the US sovereignwealth fund, then at some point
there would be one way you coulddo it, that would make sense.

Veljko (40:38):
I was gonna ask you, if it's not intergenerational wealth transfer,
then maybe it's industrial policy.
I was hoping you would spend,a couple of words and telling
us why is that a good idea?
Then I would like to move overonto, putting aside whether this
is a good idea or a bad idea, let'smove on to how could it happen.

Bill (40:57):
Before we go there, we are practicing industrial policy on a scale
that I have never seen as an adult.
In fact, even going before that,but it's called tariffs, by far
the most important industrialpolicy that's being practiced now.
With the Biden administration was thefunds for green energy and others.
But with Trump, it's gonna be tariffs.

Veljko (41:16):
When you started saying we are practicing industrial policy,
I thought you were hinting at.
The Biden administration?

Bill (41:21):
No, they did it too.

Kate (41:23):
I was thinking, we were talking about infrastructure investment in the US.
Everybody had theirown idea in their head.

Bill (41:29):
This is the opposite of laissez-faire.
Government stays back and justcalls the balls and strikes.
This is government pickingwinners and picking the
industries that are gonna do well.
Now this is another, entire,podcast if we wanna do that,

Kate (41:43):
Right?
Governments don't do a greatjob at picking winners.
That's one thing they do not do too well.

Bill (41:48):
But the most important industrial policy active today is Trump's tariffs.
And what's not clear yet iswhether they're gonna be used as
a broad sword or as a stiletto.
A broad sword would be across theboard, very large to fund the tax cuts.
Stiletto would be what they've beendone so far against Canada, China,
and Mexico to achieve specific goals.

(42:11):
It'll probably be a little bit of both.

Kate (42:13):
So then let's talk about this because we've talked about how a
Sovereign Wealth Fund can achievesome type of an industrial policy.
So how do we link the two togetherbecause, Sovereign Wealth Funds don't
put tariffs on anything, and thenwhat, how, what is the link there?

Bill (42:26):
It would be mostly geopolitical.
All of the examples that I mentionedbefore, for the Panama canal to
take over the Chinese concessionsfor the ports on both ends would
be one, you could do it that way.
If you were gonna do a militarybuildup, which of course is on
the horizon, there's tremendousshipbuilding capacity and with our
allies in Korea, Japan, whereas the UScan only produce two destroyers a year.

(42:50):
So you're up against China, which has 200plus times as much shipbuilding capacity.
So the US cannot make equity investments.
They just can't do it.
The US government can't do that.
A Sovereign Wealth fund could,so a Sovereign wealth Fund could
make these kind of investments toproduce materials in allied ports.

Kate (43:09):
But, from where I'm seeing it though, is the reason why us produces
only two of these, big Navy ships ayear, is because it's so expensive to
produce 'em there, isn't it better tojust produce them somewhere else and then
buy them, because it's gonna be cheaper?
And that's a better usage of taxpayermoney, whether we're talking about
sovereign wealth fund or justdirectly buying this thing up.
So it's going back to.

(43:30):
Is this really the best use of money?
And does this reallyprovide the best return?

Bill (43:34):
No, this is not.
Ultimately a US Army WealthFund would be a strategic fund
for overtly political reasons.
It would be the Panama Canal, theGreenland, doing something with Gaza.
It would be the kind of very riskyinvestments, equity investments, long-term
investments that almost by definitionthey're gonna have a low return.

Kate (43:55):
This makes me think about, US has historically participated in a
different type of political investments.
The first things that comes to mind isgoing to be the Marshall Plan, largely
funded by the US for the purpose ofstabilizing world economy, bringing
democracy and building up democracy acrosscountries that have been, really harmed
by the previous world wars and this, whatwe're talking about here sounds extremely

(44:18):
different from the Marshall Plan.

Bill (44:19):
Oh, yeah.
This is very self-centered, or, veryaggressively pro-American, or in
America's best interest rather thanthe best interest of Western democracy.

Kate (44:29):
I guess previously the US saw their best interest as being the
stronghold of the world and providingplans like the Marshall Plant to
increase the stability of democracyand other countries and building their
allies through that type of a plan.
So this is like a 360 degreeturn, or almost in my mind.

Bill (44:47):
And it would be in equity.
That's one of the things in thinkingabout this is really crystallized for me.
The US has given many billions of,hundreds of billions of dollars in
aid or armed sales or developmentassistance to many countries.
But basically that's been what it is.
It's been cash given to othercountries or technical assistance.
If it was a Sovereign Wealth Fund, theywould be making equity investments,

(45:10):
which the US has never made, not directlyand buying stock or, and having stock.
The social security, ourpension fund, can't buy stock.
It only can buy treasury bonds.
This would be a fundamental break,not only politically, but financially
from the way the US has conducted itsfinancial affairs internationally,
with an overtly political reason.

Veljko (45:31):
I love the fact that you guys are talking about these strategic priorities,
but I feel like you're talkingabout climate change, you're talking
about the northern corridor, you'retalking about the rivalry with China.
But let's not forget that the mainstrategic goal of the sovereign
found is to purchase TikTok.
Or at least that's whatwe were told so far.

Bill (45:49):
You're right.

Veljko (45:49):
And and of course I was kidding.
Let's talk about TikTok in a moment,but let me read you just for a second.
The White House didn't give usa whole lot of detail, right?
But it did give us some, and hereis how they describe the purpose
of the Sovereign Wealth Fund.
The headline said "The purpose ofthe Sovereign Wealth Fund is ensuring

(46:11):
long-term economic competitivenessand fiscal sustainability.
And then they have two paragraphs.
The first one reads, "the creationof a Sovereign Wealth Fund for the
United States will help maximize thestewardship of our national wealth."
So it is about wealthpreservation, maximization.
"Sovereign Wealth Funds exist aroundthe world as a mechanism to amplify

(46:35):
the financial return of a nation'sassets and leverage those returns
for strategic benefits and goals."

Kate (46:42):
Except for they underpeform..

Veljko (46:44):
Yeah.
But this is where italready gets murky, right?
Because the first statementis all about wealth creation.
Now they're already startingtalking about strategy.

Then the next paragraph (46:51):
"The United States can leverage such returns to
promote fiscal sustainability, lessenthe burden of taxes on American families
and small businesses, establish long-termeconomic security and promote US economic
and strategic leadership internationally."
And rainbows and unicorns, right?

(47:12):
In many ways it feels these SovereignWealth Funds can achieve everything.

Bill (47:15):
It goes on to say the US government has $5.7 trillion worth
of assets, which in one way istrue, but those assets are not cash.
How much would Yellowstone be worthif it was sold and commercialized?
The US government owns 80%of the state of Alaska.
So it's land and it'sproperty, plant, buildings.

(47:39):
What are the buildingsthat the government owns?
So yeah, the total assetsare this enormous figure.
Cash is, cash and gold is 1.2 trillion.
So you have all these assets andyou really, they really are real,
but cannot be commercialized.
Are we really gonna commercializeYellowstone, to do this?
And this actually gets back to one ofthe points I definitely wanted to make.

(48:00):
For it to really be a SovereignWealth Fund, you have to turn
those assets into cash first.
So the way you'd have to do it is you'dhave to privatize some of those assets.
Either sell them directly orlist them, turn 'em into cash.
That would be the equity foundationof a Sovereign Wealth Fund.
Otherwise, if they just issue bondsagainst these $5.7 trillion of assets.

(48:22):
It's meaningless.
If you issue a trillion dollars worthof Sovereign Wealth Fund bonds, you're
gonna have to service those bonds.
And for that to be a positive NPVproject, you're gonna have to invest
it at a higher rate than your pay.
That's one of the things that'scompletely missing from the discourse
so far, is that, if it's a debtfunded investment for the Sovereign

(48:42):
Wealth Fund, it's not gonna work.

Kate (48:44):
I was thinking that one thing that, we are mentioning here is like
a sale of Yellowstone and privatizingit, but US' energy production
has obviously, seen an enormousrise over the last 10 to 15 years.
And, we finally are meeting our owndemand just as of a few years ago.
And slowly starting toexport, oil as well.

(49:07):
Of course, to offset, our nationaldeficit is gonna take us many
years of exporting oil together.
But perhaps, the idea there is not somuch selling Yellowstone or privatizing
Yellowstone as capitalizing on this oilexports, but even for that explanation,
I see a really long time periodbefore anything can happen there.

(49:28):
But just wanted to bring up that oilproduction over the last 10 to 15
years has really scaled up and, that'sprobably one of the important things.
I would also like to add one thing.
I think what Veljko was talkingabout is really a discrepancy
between the statements about whatthe Sovereign Wealth Fund would do.
On one hand it's saying generate wealth.

(49:48):
On another hand that's sayingfiscal stability, making things
better for everybody, et cetera.
It almost sounds like the candy wrapperdoesn't fit the candy because if you are
pursuing wells, you're going for wealthmaximizing undertaking, investments
in for wealth maximization, if youare going for fiscal stability, taking
care of your citizens, this is a verydifferent type of a return perspective.

(50:10):
And there you're nottargeting high returns.
You're targeting stability.
So I think what he was pointing outis that there's a lot of controversy
in the current definition becausetargeting wealth and targeting financial
stability are not the same thing.

Bill (50:23):
You're absolutely right.
The US now basically produces abit more oil than it consumes.
Now it exports some, it stillimports 5 million barrels a day.
But that's 'cause there's a mismatch inthe quality, what they really are, net
exports are, its natural gas and thisis where the growth is gonna be huge.
Liquified natural gas.
Also the largest producer of natural gas.
The thing is, most of that comes fromprivate land, but the federal government

(50:47):
already leases, on a competitive basisthe access to the oil and gas reserves
on federal land and they're gettinga stream of payments in the future.
If you were to sell that today,you would forego that stream
of payments in the future.
So essentially, they're alreadycommercializing to a degree,
the oil bearing natural gasbearing sands of the US.

(51:07):
It would have to be selling the forest.
It would have to be selling rawland in Alaska or Yellowstone.
Politically, this can't happennor should, in my opinion.
But you could do it if you commercializedand privatized any fraction of that
5.7 trillion of the assets, youcould create a Sovereign Wealth Fund.

Veljko (51:25):
I just wanted to step back on that 5.7 trillion, right?
I've seen the figure, right?
That's the balance sheetof the US government.
But when you start digging into that, alittle bit of these $5.7 trillion, almost
two and a half, I believe are receivables.

Bill (51:42):
It's 1.7.
But yeah, I saw the numbers.

Veljko (51:44):
Well, I think that's one side.
I mean, the biggest thing inthere is student loans, right?
There's over a trillion dollarsin student loan receivables.
So yes, there is a liquidity issue, canyou sell all this land and furniture
that you own to monetize that money?

Kate (51:58):
Hold on.
Where is the furniture coming from?

Veljko (52:01):
In that analysis of 5.7 trillion, I think they had $500 billion listed
of, federal government's furniture.

Bill (52:08):
The most successful, largest engineering firm in history is the US
Army Corps of Engineers, which has builtthe dams and the bridges and the locks.
Many of the things in theUS are you gonna sell those?
The assets are there, but they can'tbe commercialized or politically,
it's very hard to see themactually being, commercialized.
But if you don't turn it into equityfirst, you're just borrowing, to make

(52:31):
a higher return on the governmentinvesting the money that you borrow.
If we were at a zero deficit situation,you could make an intellectual case that
maybe it's worth it, but every dollaryou spend on this, that the government
raises investing in Sovereign WealthFund is money that is not paying down the
deficit or covering its current excess.

Kate (52:52):
So we've talked about what is the Sovereign Wealth Fund,
how do the Sovereign Wealth fundof other countries look like?
We've talked about what is thepurpose of a sovereign wealth fund?
What purposes do they serve?
We've talked about is it a goodidea to have a Sovereign Wealth
Fund for The United States?
And we also talked about, SovereignWealth Fund if it were to exist
for the United States and notbeing politically independent.

(53:15):
We talked about things that could besold and bought, so putting all of
this aside, like if the US SovereignWealth Fund were, and I'm coming back
to Veljko's previous question, if theUS Sovereign Wealth Fund were to happen,
how could it happen given all of theseissues that we've raised against it?

Bill (53:34):
It could happen I don't think it could be done just by an executive
order, but yeah, you could set upa, US strategic investment reserve,
it would have to be almost surelywould've to be authorized by Congress.
Trump administration's talkingabout how they can get around it by
allocating tariffs, but no effectivelywould have to be set up by Congress.
So Congress could authorize thisformation of a strategic investment

(53:56):
fund, and then they could give the fundthe authorization to issue bonds, to
fund its operations and then give itthe authority to make the investments so
mechanically or legally, it could be done.
It could be done fiscally.
It's a bad idea, but,

Kate (54:11):
So, initially it would be adding to the deficit by issuing bonds.

Bill (54:14):
De facto by definition.
And if it was funded with dedicatedtariffs, it wouldn't increase the
initial deficit but that money couldbe better used to pay off the debt.
Especially if you're having tax cuts.
So it can be done.
And I, I'd give it almost, not quiteeven odds, but I'd give it at least a 30%
probability that it's going to be done.

(54:34):
It's a bad idea, but it may bea bad idea whose time has come.

Veljko (54:38):
There is a lot of state wealth in state level funds that some people
call Sovereign Wealth Funds, right?
In your, manuscript, you quantifyit at around $300 billion.
I believe that comes from theSovereign Wealth Fund Institute.
The figure that I see here is Alaska isthe largest one, the Alaskan Permanent
Fund, and that's at $79 billion rightnow, and that's an oil investment fund.

(55:04):
I believe the second largestis the Texas Permanent School
Fund which is also oil funded.
I think that's around 56, 55 to56 billion dollars right now.
We've always had problemscalling these so funds, right?
Maybe they're not sovereign,because these are states.
That feels like we are nitpicking alittle bit, but they're also funds
with, explicit liabilities in many ways.

(55:27):
Or with a specific purpose, inthis case funding education.
But altogether, it feels like statesalready have roughly $300 billion.
Could a national, federal sovereign fundsimply come from grabbing state level
money or is that politically unfeasible.

Bill (55:46):
It's against the US Constitution, but other than that, yeah.

Kate (55:49):
I just wanna jump in.
I'm gonna, toot my own hornhere, or however you wanna say.
I have a 2019 paper that looksat government investments and
actually I split governmentinvestors into three groups.
Political, industrial, like stateowned enterprises and financial.
Sovereign Wealth Funds and banks.

(56:09):
But in this very political group,there are this Alaska Fund and like
the Canadian Pension Fund, et cetera,which are government ran pension
funds that suggests that they'repursuing financial motivation.
One thing that was surprising to findis that when all of these three types of

(56:30):
government investors announce investmentin an entity buying an equity stake
in a firm, the announcement reactionis on average positive, surprisingly.
My company just got a stake purchased bysome government fund, the shareholders are
actually happy as the share price goes up.
Well, of course we can discountthe premiums that these government

(56:51):
investors are paying to havea stake in the firm as well.
But that's even after youcontrol for the premium.
But there's only one group where theannouncement reaction is negative, and
that group is a very political group.
This reaction is positive to governmentinvestors coming in from the industrial
side, even the financial side is actuallya wash, insignificant, but negative and

(57:13):
significantly so for politically motivatedgovernment investors, including these
funds that Veljko is talking about,like Alaska and other state funds.
I'm coming back to this worry about isthis really the best use for the money?
Because it seems like the returnsgenerated are just not there.

Bill (57:29):
No, it's not at all, but a lot of dumb ideas are put into policy.
We show that in our paper, the RFS, whenthe Sovereign Wealth Fund invests, it is a
positive reaction to the stock price, butonly half as big as it is when a private
company makes an equity investment.
If anybody's gonna buy your stock,chances are it's gonna go up.
But when a private investor may,it's a much bigger, better signal.

(57:52):
And by the way, the long-term returnfor both of those is negative.
After the investment over 1, 3, 5 years,the return to companies that receive
equity investments is quite negative.

Kate (58:03):
Equity investments from government entities, sovereign
wealth funds or private entities?

Bill (58:08):
Both of them.
That the long-term return is negative.
Issuing equity, we know this from generalcorporate finance, issuing equity is
associated with negative long run returns.
Period.
This is now establishedfact in corporate finance.
To get back to Sovereign Wealth funds,it should be an equity investment, and if
it's debt funded, you're absolutely right.

(58:28):
This would be a very poor useof American debt capacity.

Veljko (58:31):
Let me, stick to this point there was an article by Stephen
Jen, in The Financial Times.
I believe you sent it to me.
He was very gung ho about,a US Sovereign Wealth Fund.

Kate (58:44):
You mean he was very much for it.
Is that what you mean?

Bill (58:46):
Interesting counterpoint.
It's a good article to read, actually.

Veljko (58:48):
I thought that you as a Midwestern girl would get gung ho, but, my apologies,

Bill (58:53):
But we cited him many years ago.
Do you remember that?
We corresponded with him many years ago.

Veljko (58:58):
I was wondering where the name was familiar from.
No, I didn't recall.
In the later parts of the article, heactually gets very cheerful about this
idea, and at some point he even makesthe argument that our debt has a lower
yield than our equities on an average.

Bill (59:16):
Isn't that always the case in?

Veljko (59:17):
Well, of course.
But he's basically saying, we arebeing robbed by letting foreigners
capture our equity premium.
Why don't we issue more debt?

Bill (59:27):
Yeah.

Veljko (59:28):
And, take those dollars and invest it in our own equity.
If we can issue bonds at 3% andinvest it in equity, and he makes
the argument that the S&P yields10%, and of course, Sovereign
Wealth Funds are gonna exceed that.
Why is this argument wrong, Bill?

Bill (59:44):
It's wrong because a number of reasons.
One, you're extending a governmentguarantee to risky investments that
the private sector can do better.
And ultimately, you'regonna have to pay that back.
You're gonna have totax it to pay it back.
The French have always said, the UShad this inordinate, what is it called?
Inordinate privilege.
It's the wrong, quite the wrong term,because we could issue debt in e

Veljko (01:00:03):
Exorbitant

Bill (01:00:04):
Exorbitant privilege, that is exorbitant privilege that
we issue our debt in dollars.
And we do pay a lower interest rate on USgovernment debt than you would think from
debt equity and any of the kind of risk.
But yeah, we can.
The US debt is 35 trillion.
It's well over 100% of GDP,federal government debt.
Now I know the US is solvent.
There's no data that it'sgonna go out of, business.

(01:00:25):
But, there are cost to usingthis for suboptimal reasons.
What is the wealth of the United States?
It's not the property plant andequipment, it's not the land.
It's basically what's betweenthe ears of 330 million people.
It's basically the human capital is by farthe most valuable thing in a free society
and in an entrepreneurial society.

(01:00:46):
This is the wealth of the United States.

Kate (01:00:48):
And I think to translate it into valuation terms, it's the cash
flows produced by these brains of 330million people, in the future times.
So it's really the innovation,the things that's gonna improve
the world that are coming.
And these future cash flowscoming from these ideas.

Bill (01:01:04):
The wealth of the United States is absolutely immense, but
most of it's in private hands andshould remain in private hands.
Do you really want the governmentto be making these investments?
Politicized investments?
A case can be made.
In fact, in, I'm glad you'vementioned TikTok, that's the one.
Where there really is a fairly good casethat if you had a Sovereign Wealth Fund,
you could basically do it this way.

(01:01:25):
Now, whether that would assuagethe Chinese government's concern,
to sell it to the US government,but you could see how that could
absorb $50 billion right there.

Kate (01:01:35):
Am I hearing this right?
We are talking about creating aSovereign Wealth Fund is coming down
to this idea of, is it better tomanage the money that would generate
for a Sovereign Wealth Fund Privatelyor through a government owned entity?
Is that what it comes down?

Bill (01:01:49):
Yes.
That's part of it.
And the other part is , would it bebetter to just not issue that debt
and use the revenues of the governmentto pay off his existing debt or
to cover its deficit every year,which is approaching $2 trillion?

Kate (01:02:02):
What I'm seeing is there's just a lot of options on the table that
perhaps not everybody is considering.
It seems like there's a lot of optionsthat can happen for the United States
in terms of how it can spend its money.
Through private means, throughSovereign Wealth Fund or other things.
But I think what people are missing rightnow is understanding all of the options
they're tagging themselves to, likeone like Sovereign Wealths Fund where

(01:02:25):
you really need to see all the options.

Bill (01:02:26):
Yeah.
Stephen Jen is a legitimate economist,again, we talked about it at a time,
but at the same time, he's working foran investment fund, a capital firm.
What capital firm would not liketo get the mandate to manage
the US Sovereign Wealth Fund?
From their point of view, thiswould be absolutely career
making and wealth creating thing.
So yeah, a lot of people would jumpon the bag, bed wagon if this thing

(01:02:49):
gathers, steam and it very well could.
There's no institutional.
Constraint that wouldprevent it from happening.
It's a bad idea, but itcould very well happen.
And if it did happen, there's a way thatit could be done, that would be at least
value neutral, perhaps value creating,but it's not going to be done that way,
which is to privatize assets first.

Veljko (01:03:10):
My fear, when it comes to something like TikTok that we are seeing,
is that this becomes a way to distributestate assets to connected parties.
And of course, nobody knows more aboutprivatizations and privatizations gone
not always gone right than you do.

(01:03:32):
And of course, the United States doesn'thave a lot to privatize, but the cynical
mind can interpret this as, we are buyingassets so that we have something to sell.
And I know that.
Of course I'm going to theworst case scenario here, right?
But I can see the United Statesgovernment buying TikTok with
this Sovereign Wealth Fund.
And a year later, two years later,three years later, TikTok has worth

(01:03:55):
a lot less money because of all thispolitics and advertisers have escaped.
And now all of a sudden youhave this asset, and of course
we wanna privatize this asset.
And you end up with a USmade oligarch with assets
purchased with taxpayer's money.

Bill (01:04:09):
Almost surely if they did, if they did TikTok, the US government
would buy it and then they would almostimmediately turn around and contract
with a private firm to operate it.
They don't have the staff to do it.
So this is what theywould do with all of them.
The other danger of the US SovereignWealth Fund is that it would be used
to bail bailout your connected, partiesthat are, their businesses are going bad,

Veljko (01:04:29):
of course,

Bill (01:04:29):
you could direct them to basically buy out a company on a premium.

Kate (01:04:33):
One thing that's not being mentioned and this might be just a different
mindset that I have, is, all of thebusinesses go through life cycles.
And if you think about it, TikTokhas been popular for a while.
We've had MySpace.
We've had Facebook.
They all go through these popularitycycles, and I think TikTok is at the
declining stage of its popularitycycle, it's already peaked.

(01:04:54):
So that's another questionabout why would you be buying?
There's gonna be a next one comingup and the next one that catches the
attention, especially of the youngsters.
We already have Reddit and Discordand other things in that space.
But my worry with TikTok is not alongthe things that you are mentioning, but
that it's a company passed its peak.
It's on the older side of its firm life.

Bill (01:05:15):
My daughter doesn't think so, but I would definitely agree with that.
Governments are very bad atrunning entrepreneurial ventures.
They can be very good.
The US government is a classic exampleof funding basic technology that turns
into tremendously valuable things.
Computers, the internet, pharmaceuticals,but they're very bad at running
entrepreneurial businesses.

Kate (01:05:35):
They never capitalize it.
The internet was hugelyfunded by the US government.
The government nevercapitalized on that actually.

Bill (01:05:43):
One of the things that a Sovereign Wealth Fund could do, whether it
should or not, we'll have to rescuecompanies, General Motors, the banks.
What we do is we guarantee theirdebt and they often pay 'em back.
They've almost all paidback the government.
But what we didn't get in Tesla, wegave a $450 million loan guarantee
in 2010, and it was paid back, butwe didn't get any equity kicker.
We could have gotten convertible debtor we could have gotten warrants.

(01:06:06):
With a Sovereign Wealth Fund, you couldmake equity or quasi equity investments
if you ever had to either fund a newventure or bail out a company, you could
do it, but you could also take equity.
Right now, the US governmentcannot invest in equity.
A Sovereign Wealth Fund could.

Veljko (01:06:22):
So we haven't really touched upon that narrower characterization
of the rationale of a sovereign fund.
But there is a lot of cheering ofthe idea of a sovereign fund as a
government owned venture capital fund...

Bill (01:06:33):
Which is a terrible idea.
You have DARPA, they're verygood at funding basic research.
Darpa, the US governmenthas invented the future.
Computers.
Computers were designed for the USArmy to compute artillery projections.
That's what they were for.
They commercialized penicillinduring World War II.
Airplanes, rockets.

Kate (01:06:53):
I would also jump in and say NSF and NIH funding has created
amazing opportunities in bio andchemistries, of course, that have
led to amazing inventions this isall government funding of research.

Bill (01:07:03):
Government funding of research has been fantastically beneficial.
But government running of entrepreneurialventures has been a disaster across
countries, across time and will always be.

Veljko (01:07:14):
We really need to make a strong distinction between
government funding basic research
versus commercializingresearch applications.

Bill (01:07:22):
All three of us work for a state owned enterprise.
In three different states.
But they're universities andthese are tremendously beneficial
enterprises owned by state governments.
I'm not against state ownership in certaincases, but, borrowing money to invest
better than private investors could.
No, I don't think it's a good idea.

Veljko (01:07:41):
Bill, I just wanna ask you one last thing.
Let's say that, we are not superenthusiastic about this idea of a
Sovereign Wealth Fund, but I think weagreed that even though it might not
be a brilliant idea, it might happen.
Let's assume a SovereignWealth Fund does happen.
Who are the biggest winnersand who are the biggest losers?

Bill (01:07:59):
Financial firms.

Veljko (01:08:01):
So financial firms are the biggest winners.

Bill (01:08:02):
Oh, they would be immediate because they would raise the
money, they would issue the bondsto raise the money, then they would
be contracted to invest the money.
Yeah.
It's gonna be the financial firm.

Kate (01:08:11):
And we are talking here about like JP Morgan's, Goldman Sachses, BlackRock,

Bill (01:08:15):
All of them.
Or the private equity firms.
The KKR or the BlackRock, as you said.
Yeah.
These could be, they're allgonna get a piece of the pie
and it could be a very big pie.
Yeah.
Defense contractors, any contractor withthe US government, 'cause some of these
will clearly have a military componentdefense contractors, tech companies,
the Palantir and Anduril who were techfocused defense contractor and very good.

(01:08:38):
Yeah.
There would be winners.
The losers would be basicallytaxpayers as is often the case.

Veljko (01:08:45):
And yet it might happen, right?

Bill (01:08:47):
Yeah.
It's a bad idea whose time mayhave come, or may be coming.

Veljko (01:08:51):
Yeah.
And in the end, one thing weneed to recognize at the end of
the day is that the White Housedidn't give us a lot of detail.
There is that one page post anda lot of its sites data from
a Wall Street Journal article.
By the way, the last sentence in theWhite House press release announcing a
Sovereign Wealth Fund points out that,oh, by the way, the UK is planning a

(01:09:13):
Sovereign Wealth Fund as well, whichfelt like a fairly out of place comment.
There are two things that we didn't touchupon that I thought were interesting.
One is, if you actually poured $5trillion into the US equity market.
What would happen.
We have an equity marketthat says $40 trillion.
And of course the sovereign fundwouldn't need to be just equity.

(01:09:33):
But if you poured $5 trillion intothe US equity market, you would
seriously affect future returns.

Bill (01:09:41):
That's true.
Think about if you put the socialsecurity fund into the equity markets,
which has been talked about my entireadult life, and it's always been
rejected for a number of reasons.
One of which is do you reallywant the government to own
$5 trillion worth of stock?
If they did it in bonds, that'd be fine.
But no, anything doing with stock,anything doing with equity investments,

(01:10:01):
you can't get away from the factthat it's gonna be politicized and
government, and that's just not our way.
Our being the US and WesternGeneral, but particularly the
United States, we don't believe ingovernment ownership of business.
This is just not the way we do it.
You use regulation to achievethe social goals that you want.
You don't have governmentownership, nor should you.
15 years ago was at aprivatization conference.

(01:10:23):
Somebody asked me the question,what government, what country has
the most valuable state sector?
It's the United States.
Still is.
All of the airports in the UnitedStates are government owned,
whereas most of the rest of theworld, they're privately owned.
All of the ports.
Government owned.
Many buildings are government owned.

(01:10:45):
The Corps of Engineersis government owned.
The US Postal Service is government owned.
But just the airports, there's40,000 flights a day in the us right?
Just the airports would be worth,at least a hundred billion.
So you have a very valuable state sector.
It's just the political constraints onprivatizing this are, you know, this

(01:11:07):
is why you have elections in democraticsocieties is to make those calls.
What should government do?
What should it not do?
And we've traditionally said youwant government to do certain things.
And this is just notsomething that can be done.

Veljko (01:11:18):
How would you feel about using Sovereign Wealth Fund assets, putting this
$5 trillion, as was originally suggestedinto a strategic Bitcoin reserve?

Bill (01:11:29):
No,

Veljko (01:11:33):
I've never been.
I'm tempted to ask why not, butI suspect I know exactly why not.

Bill (01:11:37):
I have chaired a dissertation on blockchain, Peter Muller.

Veljko (01:11:40):
Okay.

Bill (01:11:40):
And so I, I know something about it.
I have never been a Bitcoin fan.
I've never been a gold fan.
Do you really need to replace USdollar, Bitcoin, what is it used for?
Sex, lies, and Bitcoin.
It's used for nefarious purposes.
No, I'm not a fan ofcryptocurrency at all.
Who cares, right?
It's still growing, but it's anotherbad idea whose time has come.

(01:12:02):
At least that's bubbled upoutside of government in fact
in reaction to government.

Veljko (01:12:08):
So Bill, if you should get a call from the administration, right?
I'm thinking if they do organizea Sovereign Wealth Fund and
if they do need advisors,

Bill (01:12:18):
I'd be a consultant.
I'm too old to run it or even be a majorplayer, and I'm not leaving Oklahoma, but
we know the academics who have done this,and I've actually thought about that.
Who would be suggested?
I'd be a consultant.

Veljko (01:12:30):
You obviously do not believe that it is a brilliant idea to start a
Sovereign Wealth Fund, but what can wedo as academics when we are facing what
we think is a bad idea that's still gonnahappen, a bad idea which clearly has a lot
of popular support or political support?

Kate (01:12:52):
it's about providing perspectives from an academic side.
You have a view on multiple things forthe pros, for the cons, for alternatives.
And I think that's the key there, is toexplain, introduce, and really think about
what's the best next course of action.
I think that's the strengthsof academics, right?
And it comes with empirical researchwith numbers, not just, feelings.

(01:13:15):
We have the numbers toback up what we're saying.
And I think that's a big power thereis to provide advice for the pros, the
cons, and, importantly, the alternatives.

Bill (01:13:25):
Positive economics does not ask what should be done.
It asks what is the effect of doing?
Who are the winners and losers?
In economics, there no absolutewinners, almost never Pareto optimal.
It's always gonna be winnersand losers from an appreciating
currency to a Sovereign WealthFund, to government run education.
There's always gonna betrade-offs, and this is why you

(01:13:47):
have elections and democraticsocieties to make those trade-offs.
What should government do?
What should it allow theprivate sector to do?

Veljko (01:13:56):
So let's say that next week the Trump administration sends you an
email and says, we've managed to puttogether $300 billion between DOGE
savings and new tariffs, and we are gonnaput them into Sovereign Wealth Fund.
Where should we invest this money?
How do we allocate these $300 billion?
Or is that an unfair question?

Bill (01:14:17):
it's a fair question.
And, perhaps given that we'vepublished on it, it's not a
completely absurd question.
They wouldn't like the answer, basically.
It would be pay down the debt,but they wouldn't like that.
TikTok might be the quickest first use.
Would not be a catastrophic use.
So there's certain things youcould use it for, but the danger
is of it being politicized andused for the wrong purposes.

(01:14:39):
I hope they don't do it.
But, I wouldn't bet against it.

Veljko (01:14:42):
I will say one thing, as we've highlighted, sovereign
funds are extremely heterogeneous.
We are constantly dealing with thedifficulty of, anything that applies to
Norway doesn't necessarily apply to China.
So in many ways, you are projecting on itanything you wanna project on it, right?
So when Trump is saying "sovereign wealthfunds," the tech bros are thinking, oh,
this is a government venture capital fund.

(01:15:05):
The geopolitics people are thinking,whoa, this is a way to stand up to
China and to the Belt and Road, right?
The people obsessed with US debt aresaying, oh wait, maybe this is a way to
raise some wealth to pay back our debt.
And in many ways, by not clarifying,by not being more precise on this,
this can be anything we want it to be.

Kate (01:15:25):
To the Soviet style, example, whenever it's anything we all want it to
be, it's nothing that nobody wants to do.

Bill (01:15:34):
That's true.
And if you did it, it would be anice bubble it would very soon become
the biggest in the world, right?
Or it could be.
So who doesn't want to have thelargest Sovereign Wealth Fund?
It's just a really, economically,it's a very bad idea.

Veljko (01:15:46):
And we left out the politically more controversial
interpretation of this, right?
Every autocrat around the worldhas a Sovereign Wealth Fund.
One of the benefits of having a sovereignfund from the point of view of a
politician is concentration of power.
So I think there is a certainelement of envy or emulation
of fellow autocrats here.

(01:16:06):
MBS of Saudi Arabia hasa Sovereign Wealth Fund.
Putin has or had a Sovereign Wealth Fund.
Chinese Premier Xi hasa Sovereign Wealth Fund.
Oh, I want a SovereignWealth Fund as well, right.

Bill (01:16:24):
Even democratic leaders, the new president of Indonesia just proposed
cutting the national budget by 20%to fund a Sovereign Wealth Fund.
The first act of which wouldbe to provide paid for lunches
for all school children.
28 million a year.
You're right.
Politicians would love to have big potsof money that they can completely control.

Veljko (01:16:43):
Which is exactly why we should be skeptical.

Kate (01:16:45):
Historically it has been a bad idea, but, while history usually repeats itself,
we never know what the future holds.

Bill (01:16:52):
Way off topic, but you gotta figure if they have a sovereign wealth fund, a
big chunk of it would be used for space.

Veljko (01:16:58):
I love the fact that you mentioned this Bill, because I just wanted to
give a bit of a teaser to our audience.
Because we are super happy tohave you here today to talk about
Sovereign Wealth Funds, which are anarea of almost historic expertise.
We've been writing about it fortwo decades now, but you are
doing some extremely interestingresearch lately on space economics.

(01:17:22):
Do you wanna give us a teaser?

Bill (01:17:24):
I had to do this for a course that I either volunteered
or was volunteered to teach.
We have a very large executive defenseand aerospace component at the University
of Oklahoma for a number of reasons.
So I volunteered to teach a courseon financial economics of space
thinking it would be easy, right?
It's just venture capital at large.
Turned out it was completely different.
I had to invent the industrialclassification of the space industry

(01:17:48):
because it just didn't exist.
The punchlines and the reallyinteresting parts of it, three quarters
of the space economy is private.
Only one quarter is government funded.
By far, the biggestcomponent is satellites.
There's about 10,000 satellitesnow by the turn of the decade, it
could be a hundred thousand or more.
This is growing very rapidly.

(01:18:08):
SpaceX absolutely dominates and has drivendown the cost of launch by a factor of
10 from 18,000 to basically 1,500 toput a kilogram of a load into space.
It's a fascinating business, and it'swhere venture capital goes to die.
It's had attracted alot of venture capital.
Most of it has beenunsuccessful outside of SpaceX.

Kate (01:18:29):
So, I think it's time to wrap it up.
I'm gonna ask a coupleof quick fire, questions.
What's a Sovereign Wealth Fund?

Bill (01:18:35):
Sovereign Wealth Fund is a government owned investment fund
that makes commercial investmentsmostly internationally in
pursuit of a commercial return.

Kate (01:18:42):
What's the purpose of a Sovereign Wealth Fund?
What purpose does it serve?

Bill (01:18:45):
There's a financial purpose in that you have surplus money, surplus
cash that needs to be invested abroadbecause you couldn't invest it at home
because it would drive up asset pricestoo much and you can keep it in dollars.
So there's a commercial return andthere's also a political reason, which
is basically to keep it at least somewhattransparent, the money, and to make
sure that it's not stolen by elites orsquandered by state-owned enterprises.

(01:19:09):
So it's a second best, in developingcountries that have surpluses.

Kate (01:19:14):
Give me two reasons for why a US Sovereign Wealth Fund is a good
idea and two reasons for why a USSovereign Wealth Fund is a bad idea.

Bill (01:19:23):
The good idea could be that, you could make international, venture
capital like investments, risky,geopolitically significant investments
that would benefit from a US governmentin pursuit of geopolitical goals.
Alright, that's one.
The other is, you would have a pool ofmoney that could be used to take advantage

(01:19:47):
of opportunities that come along.
I guess your following question,what are two bad ideas?
One, it's not neededin any financial sense.
The private sector is already doing muchbetter than a government could except for
a very handful of specific situations.
And to, we are not a surplus country.
Any money that the government isgonna raise should be used to pay our

(01:20:09):
bills currently or to pay off debt.
And the only way that it would makeany sense to have a Sovereign Wealth
Fund is if you first commercializedand privatized state owned, government
owned assets use that money as theequity base for Sovereign Wealth
Fund, and that's not on the cards.

Kate (01:20:25):
I see.
That was what I had for the summary.
Thank you.

Veljko (01:20:28):
We will be really happy to have you back to talk about space
exploration and how to fund it further.

Bill (01:20:33):
My class heart's in seven days, so I'll have to get it ready by then.

Kate (01:20:36):
Well, thank you.
Thank you everybody.
Thank you to our listeners for listening.
Please like us, follow us and listento us wherever you listen to your
podcasts, and we'll see you next month.

Veljko (01:20:46):
Thank you very much, Bill.
I think that's a good way to finish.
Cheers.
Cheers.

All Episodes

Episode Transcript

Popular Podcasts

Crime Junkie

24/7 News: The Latest

Stuff You Should Know

.css-15opob5{left:0;position:absolute;top:0.8rem;} All Episodes

.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}Is a U.S. Sovereign Wealth Fund a Good Idea? With William Megginson

Episode Transcript

Popular Podcasts

.css-r6mb8g{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:1;overflow:hidden;}Crime Junkie

24/7 News: The Latest

Stuff You Should Know

All Episodes

Is a U.S. Sovereign Wealth Fund a Good Idea? With William Megginson

Crime Junkie