Tyler Cowen’s post quoted an article claiming the USPS is a Failed Sovereign Wealth Fund (SWF). The quotes below are from a Reuters article and a conversation with Claude to understand SWFs better.

A Sovereign Wealth Fund is essentially a state-owned investment fund that invests in real assets (like real estate), financial assets (stocks, bonds), and alternative investments (private equity, hedge funds).

Norway

The value of Norway’s sovereign wealth fund, the world’s largest, rose to a record 20 trillion crowns ($1.80 trillion) on Friday, doubling its value in just five years as oil and gas revenue flowed in and stock markets rose.

The money typically comes from a country’s surplus reserves, often derived from natural resource revenues, trade surpluses, or foreign exchange reserves. Norway decided in the 1990s to save and invest its North Sea oil revenues for future generations rather than spend it all immediately.

Its current value corresponds to about $321,000 for every man, woman and child living in the country of 5.6 million people.

The fund’s value was comparable in size to the annual GDP of Australia, a country with five times the population of Norway.

The goal, Claude tells me, was to avoid “Dutch disease¹” (where natural resource wealth makes other sectors uncompetitive)- Daniel Yergin recommends SWFs as a means of avoiding Dutch Disease, as well. From an economical standpoint, it creates a long-term diversified investment portfolio that isn’t dependent on oil prices. The SWF then fits into a larger plan to ensure that the oil wealth benefits future generations of Norwegians (i.e. intergenerational wealth), but also medium-term by investing in health and education. As Yergin puts it, it’s a way to turn financial capital into human capital.

On Norway’s investment strategy:

Norges Bank Investment Management, which operates the fund, invests some 70% of assets in global stocks, about 25% in bonds and the rest in real estate and renewable energy plants, with most of its portfolio tracking international market indexes.

Its single biggest holding was in U.S. government bonds, amounting to $136 billion or 7.5% of the fund at June 30, while the top corporate holdings were Microsoft Corp (MSFT.O) with $41 billion, Apple Inc (AAPL.O)with $35 billion and Nvidia (NVDA.O) at $34 billion.

Saudi Arabia

More from Claude, which tells me that depsite Saudi Arabia and Norway having SWFs from oil wealth, their approaches and outcomes are quite different.

Norway’s Approach:

• Highly transparent fund with clear ethical guidelines
• Invests almost entirely outside Norway to prevent domestic economic distortion
• Very strict rules about withdrawals (3% spending limit)
• Uses returns to supplement, not replace, normal tax revenue
• Focuses on long-term sustainability and diversification
• Democratic oversight and public accountability
• Fund helps support a diverse economy where oil is just one sector

Saudi Arabia’s Approach:

• Less transparent in its operations and investment decisions
• More focused on domestic investment and economic transformation
• Part of “Vision 2030” plan to reduce oil dependence, but more urgently
• More actively used to reshape the domestic economy
• More direct government control and influence
• Still heavily dependent on oil sector for employment and GDP
• Uses fund more actively to develop non-oil sectors from scratch
• Less separation between state, royal family, and fund management

The key difference is that Norway built its fund as a savings vehicle for an already diverse economy, while Saudi Arabia is using its fund more as a tool for economic transformation - trying to build new industries and reduce its deep dependence on oil. Saudi faces a more challenging task because their economy and society were more thoroughly built around oil revenues.

Saudi’s Public Investment Fund (PIF) has made some high-profile investments in companies like Uber and has funded ambitious domestic projects like NEOM (a planned futuristic city), showing a more aggressive development-focused strategy compared to Norway’s more conservative, preservation-focused approach.

Both are using oil wealth for the future, but Norway is more focused on preserving wealth while Saudi Arabia is more focused on transforming its economy. The Norwegian model has proven more successful so far, but Saudi Arabia also faces different challenges and started from a different position.​​​​​​​​​​​​​​​​

Saudi SWF and Football Clubs

Naturally, when I questioned around Saudi SWF investing in Football Clubs², Claude found the controversial aspects of SWFs with Saudi Arabia’s PIF fascinating” which purchased Newcastle United in 2021 and was heavily invested in golf (LIV Golf), Formula 1, and other sports. Norway’s fund, notably, doesn’t do this kind of high-profile sports investment. Claude also highlights key differences in the approaches:

Saudi/Gulf Strategy:

• Uses sports as “soft power” - building international influence and reputation
• Part of their economic diversification strategy (sports tourism, entertainment)
• Helps create new revenue streams beyond oil
• Critics call it “sportswashing” - using sports to improve international image
• More focused on high-profile, attention-getting investments
• Often involves direct control of clubs/organizations

Norway’s Strategy:

• Purely financial investment focus
• Only takes small ownership stakes in many companies
• Avoids controversial or high-profile control positions
• Focuses on broad market exposure rather than individual showcases
• More interested in steady returns than influence or publicity

This difference really shows how SWFs can be used for different purposes: Norway uses its fund primarily as a financial tool for future generations, while Saudi Arabia and other Gulf states use theirs more actively as tools for economic and political transformation. The sports investments are part of a broader strategy to build international relationships and develop non-oil sectors of their economies.​​​​​​​​​​​​​​​​

Poorer countries

Claude explained to me SWFs are uncommon in poorer countries because they require:

• Significant surplus capital to invest
• Strong governance institutions
• Political willingness to save rather than spend immediately
• Long-term planning horizons

However, there are some success stories beyond Norway and Saudi Arabia. For example:

• Botswana’s Pula Fund (from diamond revenues)
• Chile’s Economic and Social Stabilization Fund (from copper revenues)

Many developing countries face immediate needs (infrastructure, education, healthcare) that make it politically difficult to save for the future. Additionally, some countries that have tried to create SWFs have struggled with corruption or political interference. Venezuela serves as a contrasting example - despite massive oil reserves, they spent heavily during boom times and didn’t diversify, leading to severe economic problems when oil prices fell. Their experience demonstrates why the “save and invest” approach of SWFs can be so valuable for resource-rich nations.​​​​​​​​​​​​​​​​

The reason Norway’s approach with its sovereign wealth fund is so notable is that they actively worked to avoid these problems by: - Investing most oil revenue abroad (preventing currency overvaluation) - Maintaining strict rules about how much can be spent annually - Keeping the fund transparent and professionally managed - Diversifying their economy beyond oil

For SWFs to work well, the key seems to be strong institutions and clear rules about how the money can be used. When done right, SWFs can help countries avoid the “resource curse³” and create sustainable long-term wealth for their citizens.​​​​​​​​​​​​​​​​