Trump’s Push for a US Sovereign Wealth Fund Transforms an Agency

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(Bloomberg) — A government agency traditionally responsible for development lending abroad aims to be more like a sovereign wealth fund, a key goal of President Donald Trump, according to a memo to staff.

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The US International Development Finance Corp. intends to shift its investment priorities to balance its currently authorized development financing with a greater focus on returns as it advances US foreign policy interests, according the Feb. 20 memo. DFC aims to target strategically important sectors using a number of different asset classes to deploy its more than $200 billion in financing capacity. 

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“We want to bridge the gap between Washington and Wall Street,” Conor Coleman, DFC’s chief of staff and head of investments, said in an interview. “We want the private sector to know what DFC is and invest alongside us because they know we’re going to be an active partner.”

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The memo doesn’t spell out specific projects DFC is expecting to invest in, saying a more detailed capital allocation and foreign policy strategy will be released in the next few months. The new approach cites investing in critical minerals, power and energy, infrastructure and financial services as top priorities. 

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“As the US Government’s instrument for global economic statecraft and investment, DFC applies capital selectively to drive outcomes in priority sectors and regions while mobilizing private investment alongside it,” the memo, labeled “DFC Capital Allocation,” said. “This strategy balances development objectives with a more returns-oriented sovereign fund model.”

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The document sent last week spelled out a new direction for the little-known agency that’s seen its financing capacity more than triple and many geographical limits on its operations lifted in the last year. The Trump administration also is expanding DFC’s powers beyond traditional development to investing equity and debt in private companies to boost US competitiveness in sectors dominated by China and other nations.

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Trump’s appointee to head the DFC, Ben Black, hails from Wall Street and opening an office in New York was one of his early moves in the job.

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The details laid out in the memo also indicate a pivot from investments focused on specific countries and regions to help boost local economic development. The focus on strategic sectors is more in line with Trump’s view since taking office a year ago that the US should use the full force of the US government to directly intervene in corporate and economic matters to address what he deems significant to national security.

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“The existing portfolio is not indicative of the toolkit you will see from the new DFC,” the memo said, including a graphic showing its aim to be halfway between a development institution and a wealth fund.

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Trump has called for the creation of such a vehicle, but the White House put those plans on the back burner last year amid legal and financial obstacles.  

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The latest memo outlines the need for the DFC to be more proactive, which it hopes to achieve by increasing its collaboration with the Export-Import Bank, the Pentagon’s Office of Strategic Capital and other parts of the government. The mention of these two agencies is significant as they’ve grown in influence since Trump took office to deploy debt and equity into everything from critical minerals companies to solid-rocket-motor producers. 

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