As you’ve not doubt noticed, sovereign funds are popping up around the world at an increasing rate. And, lucky for me, I’ve had the good fortune to get to travel the world to meet (and study) many of them. But there are certain funds that are just too remote and obscure to have attracted my attention or visitation. I’m of course referring to the funds in...the United States of America.
I admit it. I’ve never been to visit any of the funds in Wyoming. Or the ones in Oklahoma. Or Alabama. Or Alaska, Louisiana, Montana, New Mexico, Texas or any of the other US states that now have sovereign fund type investment vehicles. And I think I have been wrong to overlook these funds. Why? Because the American funds are fascinating.
I was reminded of this fact while reading about North Dakota (another state I haven’t researched) and its many state investment vehicles. Did you know North Dakota recently set up a “Legacy Fund” to help manage the $2.1 billion in oil tax revenues it will collect between 2011-2013? You did? Ok. But did you know the new Legacy Fund is actually the state’s fourth fund of this nature? (i.e., North Dakota also has the Resources Trust Fund, the Common Schools Trust Fund, and the Foundation Aid Stabilization Fund.) I’m pretty sure most people wouldn’t know that factoid. But I do know one person who is certainly on top of this: Paul Rose of Ohio State’s Moritz College of Law.
In fact, Prof. Rose just wrote a paper entitled ‘American Sovereign Wealth’ that goes into great detail about the many American SWFs, focusing on the motivation underpinning their creation and the operation and implementation of their investment strategy. Here’s quick blurb:
Of particular interest to me was the ‘three common justifications for state sovereign wealth funds’ that Rose identifies: revenue smoothing, intergenerational equity, and autonomy preservation. I was also interested to learn that, in his view, very few of the American funds achieve any of these objectives.
So here’s the punchline: The US may have more sovereign funds than any other country in the world, but most of these funds aren’t effective due to a variety of design and governance flaws. In other words, the US may have $100 billion sequestered in inefficient and ineffective investment vehicles (which, I guess, isn’t all that surprising given the state of public pensions). And that, my dear friends, is why I find these US sovereign funds more and more intriguing. In my view, the potential to squander $100 billion warrants some attention!
