Slow Progress on SWF Governance Standards

Only nine of 31 sovereign funds fully complied with the governance and disclosure standards of the Santiago Principles, according to GeoEconomica.

1geoeconomica2014(Source: GeoEconomica)Governance and transparency standards at some of the world’s largest sovereign wealth funds (SWFs) are still falling below agreed levels, according to a study.

Geneva-based political risk consultancy GeoEconomica found that only nine of 31 SWFs surveyed had complied with a “good governance and financial disclosure standards” agreement laid out in 2008, known as the Santiago Principles. This is up only slightly from the 2013 study, which found six funds in compliance with the principles. Funds run by Gulf countries were particularly criticised in the latest report.

Compliant funds included Australia’s Future Fund, the New Zealand Superannuation Fund, Norway’s Government Pension Fund Global, and the Alaska Permanent Fund, which were all rated A or A-, along with SWFs from Chile, East Timor, and Trinidad & Tobago. The SWFs in the study represented total assets of about $4 trillion.

Another nine sovereign funds—including the Korea Investment Corporation and Singapore’s Temasek Holdings—were considered broadly compliant.

However, four of the five largest funds in the world—the China Investment Corporation, the Abu Dhabi Investment Authority, the Kuwait Investment Authority, and Singapore’s GIC—were identified as only partially compliant.

“Partially compliant funds do not disclose robust financial information, such as an audited income statement and balance sheet, conclusive information about funding, and withdrawal arrangements, rates of returns, or performance benchmarks,” the report said.

According to GeoEconomica, funds in the Middle East were especially opaque and fell significantly behind their peers in public disclosure policies. This is cause for concern, the firm argued, as they represent a sizeable chunk of the world’s sovereign funds with combined assets under management of about $1.3 trillion.

“Arab SWFs have demonstrated neither their managements’ operational independence nor their economic and financial orientation, and therefore have not contributed to building confidence in the SWF industry in line with principles’ aspiration,” the report said.

Furthermore, the consultancy named the $304 billion Qatar Investment Authority as the only fund that was non-compliant with the Santiago Principles and said it “has yet to take any meaningful steps to meet some of the principles’ basic disclosure standards.”

QIA ranked second to last in 2013’s rankings with a 31% overall compliance ratio.

The report also highlighted most sovereign wealth funds have trouble coordinating between fund management and government “driven by fear that disclosure would compromise their overall reputation and compliance with the principles.”

Related Content: An SWF’s SWF, Norway SWF Urged to Upgrade Oversight Before Diversifying, Many SWFs Still Bound to Politics, Study Finds