Many SWFs Still Bound to Politics, Study Finds

GeoEconomica found that only a third of 26 sovereign wealth funds of the Santiago Principles’ signatories passed the test of good governance, transparency, and accountability.

(October 7, 2013) — Five years after the signing of the Generally Accepted Principles and Practices (GAPP), only six sovereign wealth funds have been considered compliant, according to a new study.

A Swiss political consulting firm GeoEconomica reported that many funds, particularly Russian and Middle Eastern ones, were not meeting basic standards of “good governance, financial disclosure, and accountability.”

The Norwegian Government Pension Fund Global topped the study’s list, with a 94% rating on the 2013 Santiago Compliance Index, while Bahrain’s Future Generations Reserve Fund ranked at the bottom, at 24%.

The overall compliance ratio was 70%, the study found.

The report said five funds were not compliant with the Principles, scoring below 50%.  They “lacked consistent commitment” and failed to publicly disclose information, the report stated.

Of the "underperformers", the Qatar Investment Authority (QIA) was pointed out as one of the fastest growing sovereign wealth fund that “fails to provide conclusive information about its mandates, finances, accountability and governance arrangements.” The QIA was ranked second to last in the index at 31%.

GAPP, or the Santiago Principles, were signed by 26 sovereign wealth funds from 23 countries in 2008 to demonstrate that the funds’ governance and fiduciary responsibilities were disparately aligned from political interests.

Compliant funds, the study found, consistently disclosed their intentions through their mandates to the public and described the interaction between governments and funds. They also ensured the funds’ governing bodies operated independently “without political interference,” the report said. And lastly, the funds provided adequate financial transparency.

“Disclosure should cover the amount of monies that are going into a fund and the amount of money that is leaving it,” the report said. “It shall cover how the monies within a fund are used, and what returns they generate. This information combined shall ascertain whether a fund does what it is supposed to do, or alternatively provide indications with regards to malpractice.”

GeoEconomica concluded that despite the principles’ mission to identify sovereign wealth funds’ “political positioning,” they will remain “political agents.”

“Their very presence is an expression of sovereign preferences to use public financial resources as a specific public policy instrument,” the report said. “A SWF exists because the sovereign decided that it is in the national interest to store and invest public monies.”

Middle Eastern funds, for example, have been investing with their political stabilization efforts in mind, the paper said.

“The fundamental rebalancing of political forces within the wider Middle East might cause a fundamental rethink in mandates and policies,” the report said.

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