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As global economic uncertainties rise, Sovereign Wealth Funds (SWFs) have become vital tools for many nations to strengthen economic resilience and position strategic industries. On the first anniversary of President Lai Ching-te’s inauguration, he proposed the establishment of a sovereign fund for Taiwan, marking a significant step forward on a topic discussed for over twenty years.

However, the fundamental challenge facing the establishment of a sovereign fund in Taiwan lies in whether the government and the public possess adequate governance culture and risk recognition capabilities. The sovereign fund, by nature, is a government-led long-term investment tool, with diverse funding sources including revenues from natural resources, budget surpluses, foreign reserves, or proceeds from state asset disposals. Notably, the examples of Singapore's Temasek Holdings and Government of Singapore Investment Corporation (GIC) serve as benchmarks, showcasing how professional governance, independent operations, and market-oriented strategies yield remarkable financial performance and enhance the upgrading of Singapore's industries.

A similar model can be seen in Norway's Government Pension Fund, which initially relied on surpluses from oil exports and has successfully ensured long-term welfare for its citizens through prudent risk diversification strategies. However, despite its robust governance framework, it too encountered significant losses during the 2008 financial crisis, underscoring the high-risk nature of managing sovereign funds.

Taiwan's National Development Fund (NDF), established in 1973, serves as a reference point for operating a sovereign fund. Its most successful investment has undoubtedly been the early investment in TSMC, which has contributed hundreds of billions in annual returns over the years. This success is not coincidental but is a result of professional governance and strict risk management.

Conversely, the existing limitations of NDF include relatively little investment in publicly listed companies or traditional manufacturing sectors, as well as a lack of strategies to foster international cooperation from a national perspective. Under the episode of the tariff policies under Trump, international trade circumstances have dramatically changed, and Taiwanese companies relying solely on their own efforts to expand abroad are at high risk; thus, a multi-faceted approach incorporating finance and technology is essential to synergize efforts.

A sovereign fund can provide robust support to Taiwan, enabling investment in overseas quality assets while grasping international trends in technology and finance. This will not only enhance the country’s economic competitiveness but also provide a stable backing for Taiwanese businesses in an unstable global economic environment.

Utilizing excess tax revenue is a critical challenge for establishing a sovereign fund in Taiwan. As Taiwan lacks income from natural resource exports, traditionally, the focus has been on utilizing foreign reserves or budget surpluses. However, as noted by Professor Emeritus Chen Bo-zhi of National Taiwan University, the utilization of foreign reserves involves high risks related to exchange rate stability and balance of international payments; leveraging debt could increase the fiscal burden on the state. In contrast, excess tax collections present an ideal funding source. If this unexpected revenue is directed towards forming a sovereign fund, it can avoid the risks of increased debt while accumulating national wealth. Therefore, excess tax revenue should be viewed as the best opportunity to establish a sovereign fund, aligning with sound financial principles while avoiding short-sighted political motivations.

The success or failure of a sovereign fund hinges on governance structure and risk management capabilities rather than the size of the fund. The core of success for Temasek and GIC lies in their clearly defined institutional design, professional operations, and effective insulation from short-term political interference, which Taiwan must deeply learn from. Hence, should Taiwan establish a sovereign fund, it must create a professional, independent, and transparent governance system to avoid the interference of short-term political interests in fund operations.

Simultaneously, a highly respected oversight mechanism should be in place to ensure political conflicts do not impact the fund's autonomous operations, effectively managing investment risks. The funds of the sovereign fund belong to all citizens, and risks and rewards must be shared among the public. The government must communicate thoroughly with the people during the decision-making process to form a broad consensus and avoid social misunderstandings and conflicts arising from a lack of transparency.

Only through open and transparent discussions can the public fully understand and support the operational model of the sovereign fund, achieving the goals of shared risk and shared benefits. The true challenge in establishing a sovereign fund in Taiwan lies in whether it can cultivate a mature governance culture, develop professional investment capabilities, and courageously take on the associated risks. Only with a sound governance structure and effective risk control can the sovereign fund become a crucial strategic tool for industry upgrades and enhancing the country's influence, rather than a fiscal burden on the public. This is the core challenge that Taiwan must earnestly confront.