US President Donald Trump announced last week the creation of the first American sovereign wealth fund. He had pledged during his campaign to pursue such a policy, but this time, he formalized it with an executive order directing a plan for the fund to be developed within 90 days.

Trump’s executive order creates a sovereign wealth fund to invest in key sectors and possibly acquire TikTok. Here’s how sovereign wealth funds work.

Effectively, it's a government-run hedge fund that invests in assets like stocks, bonds, real estate, and infrastructure. It's a fairly straightforward process: the government provides funds, and the SWF invest it into risky assets to try to earn profits. This is the same as any investment company, only that its sole investor is the government.