The Gulf has made establishing a sovereign wealth fund seem like a strategic—and glamorous—choice, leading countries like Canada to launch their own. But Latin America has run this experiment many times over the years, offering a more realistic view of an SWF’s pitfalls and promise.
NEW YORK—What’s not to love about a sovereign wealth fund? Gulf states’ SWFs, which control roughly $6 trillion in assets, are no longer mere investment vehicles. They have become tools of statecraft, transforming kingdoms and emirates into power brokers and benefactors. Alongside splashy spending on sports and luxury retail—Saudi Arabia’s Public Investment Fund (PIF) bought the English soccer club Newcastle United, and the Qatar Investment Authority (QIA) owns the department store Harrods—these funds have poured money into strategic sectors such as AI, logistics, and renewables. They also provide economic support to allies, serving as a foreign-policy lever.
The Gulf model is so appealing that Canadian Prime Minister Mark Carney recently launched an SWF, and US President Donald Trump signed an executive order to establish one. But neither Canada nor the United States can match the decades of hydrocarbon surpluses that form the backbone of the Gulf model. A more relevant example would be Latin America, which has run this experiment many times over the years, and under conditions much closer to those prevailing in Canada and the US.
Unlike the Gulf states, with their consistently rising oil revenues and conservative monarchies, Latin American countries have faced commodity booms followed by fiscal deficits, as well as political swings between left and right, ruling out long-term policy continuity. While a few succeeded in building SWFs, many failed. Their experience offers useful lessons for the US, Canada, and other countries embarking on this path.
First, launching an SWF requires a significant sum of money that a government can afford to set aside. When Brazil created its SWF in 2008, the capital came from fiscal allocations and public borrowing, rather than a meaningful commodity windfall. The math never worked, and the fund was dissolved 11 years later, with the remaining assets going to debt service.