Sovereign Wealth

Sovereign Wealth

At $2.3T, Norway's Sovereign Wealth Fund (SWF) owns ~1.5% of ALL global equities in its portfolio, providing Norway's 5.67M citizens a notional account value of over $400,000 USD for every man, woman, and child in Norway.

This SWF derived from Norway's collection of a 78% profit tax on oil production. Keep in mind, Norway is only 12th in the world in total annual oil production.

Given that the United States is the LARGEST net oil exporter in the world, producing some 13.5 million barrels per day as of 2025, it begs the question where is OUR Sovereign Wealth Fund?

The United States operates under an antiquated 1920s 12.5% Mineral Leasing Act, earning a reported "$8B last year."

Yet 2025 crude oil production in the United States was as previously mentioned 13.5M barrels per day totaling some ~5 billion barrels for the entire year. With an average market price of $65 USD per barrel that equates to roughly $325B in total US crude production revenue.

I'm no Albert Einstein, but there seems to be some SERIOUS "leakage." 12.5% of $325B is NOT $8B. Where is the other $33B going? Hint: Probably NOT to YOU the taxpayer.

Imagine if the United States government was not beholden to Big Oil, but rather it had the integrity and foresight to establish a sovereign wealth fund like Norway and charge an equitable royalty rate (after all, these ARE all citizen taxpayer public lands) of say 50%.

The oil majors would all still be wildly profitable, and within 10 years the United States would have well over $1T in a SWF. In a generation the earnings of this fund could wholly replace Social Security (and the economic break-pedal of its onerous wage tax.)

Imagine if instead of a National Debt of ~$40T or about $115,000 for every man, woman, and child in the United States we too had early positions in Apple, Amazon, Dell, Google, Microsoft, Nvidia, SpaceX, and Tesla like Norway?

The United States is the EPICENTER of innovation. Citizens should be reaping the rewards alongside this innovation.

Let's utilize royalties from national natural resources from public lands to invest in the future productivity and innovation in this country for all citizens to benefit and wean ourselves off of wasteful employment taxation.

Within 10 years the United States Sovereign Wealth Fund (USSWF) could and should totally replace the need for Social Security or the Social Security Administration. 

The Boomers would be the LAST generation to receive benefits under Social Security, while GenX and beyond would receive proportional income shares in the new USSWF.

T. H RAPKO & COMPANY, LLC would be proud to manage the USSWF on behalf of all Americans. If we are going to "Drill, baby, drill" in this country, we should also "Invest, baby, invest."

Long-Short

Long-Short

The hottest hedge fund strategy in the world right now is a Long-Short equity approach popularized by AQR Capital Management (AQR) which has managed to vacuum in some $100B+ in assets under management.

The Long-Short strategy is seductively simple, and when executed correctly can validate the fees being charged. Simply put, a Long-Short strategy seeks overall total portfolio growth, but how it accomplishes this is interesting.

Investors, predominantly higher-net-worth and/or those with concentrated stock positions, either deploy capital in the form of new cash or inject existing equity positions into the strategy. To fully benefit from the strategy assets are typically non-qualified (read as non-IRA, 401k, Roth, etc.) Typically these are assets which normally would be subject to the standard tax code.

Using a Long-Short strategy a Portfolio Manager is simultaneously LONG (ie owning the position outright) and SHORT (selling a position he does NOT own.) This can be confusing, most people understand the LONG leg of the strategy. It means you are betting on the future appreciation of a stock for example. A SHORT position is just the opposite; you are betting on the future DEPRECIATION of a stock.

For better or worse, modern finance has "evolved" via the use of derivatives to allow for short selling and also purchasing of options contracts like CALLS and PUTS which give the buyer the OPTION (but not the requirement) to either BUY or SELL a stock.

What a man named Alfred Winslow Jones theorized, then put into practice in 1949 was essentially the first hedge fund. Pooling together $100,000 (a princely sum at the time, $40,000 of which was his) Jones created the first known example of a "hedged fund," ie he was simultaneously LONG some equites and SHORT others.

Jones published a finding of his research in the March 1949 issue of Fortune magazine titled "Fashions in Forecasting."

Warren Buffett took notice. In 1956 Buffett started Buffett Associates with $105,000 and a 50% (you read that correctly) management fee on any return GREATER than 4%. A classic Balzacian outcome ensued, ie: "The secret of a great fortune for which you can find no cause is a clean crime, because it was cleanly done."

Carol Loomis reported on Jones's results in 1966, some 17 years after Jones had launched A. W. Jones & Company. This sparked further imitation including by George Soros and his Quantum Fund as well as Michael Steinhardt's Steinhardt Partners.

This strategy got so hot in fact, oddly Buffett closed down Buffett Partnership at the end of 1969. He told his partners something to the effect that there was little future opportunity in a company he had just purchased called Berkshire Hathaway.

Fast forward some 50 years AQR founder Cliff Asness, along with a host of firms, are raking in the assets by offering a classic Long-Short hedge fund strategy...with a twist: A big selling point is that the 2.0 version THROWS OFF LOSSES. 

Why in the world would savvy investors want LOSSES? ILAF readers know we are all about growth. Why would sophisticated, wealthy, and smart investor want to LOSE money? Ahhh...read on dear farmers...as they say "timing is everything."

To a rich man losses are as valuable, if not more, than taxable gains. The reason for this is the way the tax code is structured. Although a Long-Short strategy's OVERALL goal may be to pursue growth, it has a very, very interesting feature of throwing off significant losses.

These losses can be harvested just like ripe fruit my dear fellow farmers. Succulent, aromatic, peach juice dripping down your elbow delicious losses. And like any good harvest, you can those peaches baby! Losses can be carried over from year-to-year-to-year.

Think of it like this: You have a farm with dozens of crops. Every year many of those crops grow and do extremely well. Some, however, fail. The current tax code allows you to harvest that loss, and keep it on your books INDEFINITELY. 

Sooner or later you *might* need to take a gain, for whatever reason; ie you are in need of a 2nd, 3rd, 4th home or your G550 needs engine work. Fear not. That carried loss can now be applied to your large gain.

As Apple, Facebook, Google, OpenAI, Anthropic, Microsoft, Amazon, SpaceX, etc. engineers occasionally leave their offices Wealth Managers are waiting for them in the parking lots ready to offer them this fantastic opportunity.

This Long-Short 2.0 strategy has been increasingly proactive in the crystallization of the "K-shaped" economy where the (financial) winners are predominantly young(er) engineers or employees with significant equity stakes AND Baby Boomers at the highest echelons with considerable net worth.

Consider, there are almost a MILLION Americans with OVER $10M. Over 100,000 have $50M+. And some 10,000 have over $100M. A lot, probably 80-95%, of that wealth is in UNREALIZED gains that will not be taxed until it is realized. Even in death there is a significant tax break in terms of the cost basis being RESET to fair market value.

So if you're a financial farmer plowing the fields, earning a good living, and saving for the future it behooves you to consider allocating a good portion of your liquid net worth to a Long-Short approach tailored to your specific needs, risk tolerance, and time horizon.