President Trump signed an executive order that puts in motion plans for a U.S. sovereign wealth fund. Here's what a sovereign wealth fund is and how it works.

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.

The Treasury and Commerce Departments are drafting a plan detailing how a federal sovereign wealth fund might be structured, funded, and managed.