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 football 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 US 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 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.
Guyana had the opposite problem. In 2025, its SWF received $2.47 billion in oil revenue. But the money went out as quickly as it came in: that same year, parliament authorised $2.46 billion in withdrawals. Without any guardrails to prevent the windfall from being spent, the fund functioned as a fiscal-transfer mechanism, not a savings vehicle.
There is also the risk of SWFs being overburdened with mandates. Mexico's oil fund, for example, is tasked with stabilising the budget, saving for the future and propping up Pemex, the state-owned energy company. When those goals compete, the urgent one wins. Oil revenue keeps being pulled away to keep Pemex afloat, and savings never accumulate. Money that should have built long-term reserves goes instead to short-term fiscal politics.
Arguably, the most important example is Chile's Economic and Social Stabilization Fund, which has provided a model for the region. But even a well-governed fund can run into problems. Chile had to confront the reality that it borrows at an interest rate of 5%, while its stabilisation fund earns 1–2% per year. When a person has a modest savings account and high-interest credit card debt, consumer finance experts would urge them to pay down the card first. In 2024, Chile passed legislation to restructure the fund as an endowment with more flexibility to chase returns -- underscoring the importance of enabling sovereign wealth funds to invest aggressively.
Latin America's SWF expertise has been recognised on the world stage. The global standards for sovereign wealth governance, the Santiago Principles, were signed in Chile's capital in 2008. Panama, having spent decades insulating autonomous institutions like the Canal Authority from political interference, has built similar protections into its SWF, which the Peterson Institute for International Economics' 2021 Sovereign Wealth Fund Scoreboard rated at 82 out of 100. By contrast, the QIA scored 46, and PIF came in even lower, at 39.
To be sure, some people will argue that certain public investments, like those contributing to employment growth, regional development and national security, produce social benefits that justify accepting lower financial returns. But the vehicle for those investments is a development bank, a PPP or industrial policy -- not an SWF.
The Gulf has made SWFs seem like a strategic choice. But their success has depended on billions of dollars in fossil-fuel revenue and political continuity, neither of which is readily available to Mr Carney or Mr Trump. Fortunately, they need not look far for alternative models: Latin American countries have identified not only the pitfalls of SWFs, but also how to build one that can deliver realistic, if less glamorous, results. ©2026 Project Syndicate
Erika Mouynes, a former foreign minister of Panama and a fellow at the Institute of Politics at Harvard University, is a geopolitical and investment strategist.
