North American Dream: The Rise of U.S. and Canadian Sovereign Wealth

Abstract

On March 8, 2014, the West Virginia Legislature approved the creation of a West Virginia “Future Fund,” the latest in a series of North American sovereign wealth funds (SWFs) created in recent decades. Following a model used by other states and provinces, under the West Virginia legislation, 3% from all severance taxes on coal, oil, natural gas, minerals and timber will be diverted to a permanent trust fund. West Virginia joins a large number of U.S. states and Canadian provinces to create a sovereign wealth fund. And West Virginia’s will almost certainly not be the last SWF: recent estimates by the U.S. Energy Information Administration place the amount of undeveloped, technically recoverable shale oil and shale gas in the United States alone at 862 trillion cubic feet in deposits from New York to California. Saskatchewan is also preparing to launch a wealth fund, using revenues from the same natural resource reserves enjoyed by its southern neighbors.

This article will briefly consider the phenomenon of North American funds — their creation, history, goals, and differences — with a particular focus on their governance and investment decision-making. Although the creation of new funds like West Virginia’s Future Fund and North Dakota’s Legacy Fund have received significant popular attention in recent years, many North American funds have existed for decades, and the legislative history of some funds dates back to 1785 (two years prior to the adoption of the U.S. Constitution). And, with significant oil, natural gas, and mineral wealth remaining to be tapped in the United States and Canada, West Virginia and Saskatchewan’s funds may just be the latest in a continuing wave of North American SWFs.

Keywords: sovereign wealth, permanent fund, severance tax, intergenerational wealth

JEL Classification: K20, K23, K34