x Abu Dhabi, UAEThursday 27 July 2017

Sovereign funds see progress

The world's main sovereign wealth funds see progress towards a new code of corporate behaviour, although analysts point to shortcomings.

The world's main sovereign wealth funds (SWF) say they see progress towards a new code of corporate behaviour, although analysts point to shortcomings in its adoption. In meetings over the weekend in Sydney, a forum composed of leading SWFs, including the Abu Dhabi Investment Authority (ADIA) that has an estimated US$500 billion (Dh1.83 trillion) of assets, said they saw "continuing progress" in the adoption of the Santiago Principles.

Those principles consist of a set of voluntary guidelines for the disclosure of financial information, management structure and control, which were agreed to at a meeting in Santiago in 2008. At the weekend meeting, the funds pledged to conduct a survey on their "experiences with the application" of the principles and would publish "relevant parts of it". In keeping with those principles, ADIA released its first annual review in March, disclosing average annual returns of 6.5 per cent over the 20 years to the end of last year, and 8 per cent over the 30 years to the end of last year.

The fund outlined its allocation ranges to stocks, bonds and other investments and said about 80 per cent of its assets were managed by "carefully selected external fund managers". It also revealed its internal structure and funding sources in more detail than before. Ted Truman, a senior fellow at the Peterson Institute for International Economics, said he viewed ADIA's annual review and other transparency and accountability measures "as quite impressive and commendable". Mr Truman said his analysis revealed that ADIA complied with between 70 and 80 per cent of the principles. But he said it scored lower when he applied a more strict set of criteria - about 60 per cent.

"ADIA has made great strides from where they were as one of the most opaque SWFs," he said. "Other funds have increased their compliance as well. I think ADIA has made more than a 'good faith effort,' as we often put it." Sven Behrendt, a visiting scholar at the Carnegie Middle East Centre in Beirut, said the implementation of the principles by the group as a whole remained "uneven". ADIA, for example, came out ahead of the Kuwait Investment Authority, Qatar Investment Authority and Bahrain's Future Generations Reserve Fund in Mr Behrendt's analysis, which said ADIA complied with about half of the principles. But it lagged behind 15 of the 26 funds that drafted the Santiago Principles.

No official body was formed to evaluate compliance with the principles. The main areas it lagged behind in related to principles regarding its operations and the structure of its governance systems, Mr Behrendt said. ADIA helped to lead the charge to formulate and adopt the Santiago Principles. The International Working Group of Sovereign Wealth Funds, which came up with the document, was co-chaired by Hamad al Hurr al Suwaidi, the Undersecretary of the Abu Dhabi Department of Finance. afitch@thenational.ae