A working group established by the world's leading sovereign wealth funds (SWFs) and led by the Governments of Abu Dhabi and Singapore presented a voluntary set of investment guidelines at the International Monetary Fund's (IMF) annual meeting in Washington on Saturday. The 24 "Santiago Principles" include: establishing legal and governance frameworks; having clearly defined investment strategies; producing "timely" annual reports; and disclosing the sources of funding.
There had been fears that national governments might use their economic power as a political tool to destabilise other countries, and it is this threat that these principles are designed to allay. Writing in The National today, Hamad al Suwaidi, a member of the executive council of the Government of Abu Dhabi and a director of the Abu Dhabi Investment Authority (Adia), Henry Paulson, the US Treasury secretary and Tharman Shanmugaratnam, the Singaporean finance minister, outline the importance of SWF investing at a time of global uncertainty.
"The SWFs' long-term orientation and ability to ride out market cycles brings important diversity to global financial markets and allows them to play a stabilising role," say the authors. "We believe that the Principles are an important step forward in maintaining an open and stable global financial system. Success on this front is too critical to risk failure. "As proponents of the March principles, we applaud the progress made by SWFs and recipient countries alike and urge all participants to deploy equivalent efforts on implementation."
In March, the Governments of Abu Dhabi and Singapore and the US Treasury reached agreement on the broad policy principles for SWFs. The Government of Singapore Investment Corporation released its first public report a month ago on how it manages the government's portfolio, including key information on its governance framework, investment processes, asset mix and long-term returns. Temasek, which owns and manages the Singapore government's direct investments, already publishes detailed information annually.
The Adia has disclosed its broad asset allocation and is engaged in a process to enhance disclosure in all these areas, including compliance verification. The International Working Group of SWFs was established to counter the criticisms of high-profile investments by the funds. However, with markets around the world tumbling, the mood has changed. "One key vulnerability is the growth of protectionist sentiment, which harms the free flow of capital and limits investment opportunities, and ultimately weakens economic growth and job creation," the three officials write. "It is easy to lose sight of this risk at a time of upheaval in global markets. But the current financial crisis only underlines the importance of keeping markets open to capital and encouraging investors willing to take a long view."
Analysts say that with these principles in places, SWFs may be encouraged to increase their level of investment in the world's turbulent stock markets. email@example.com