Sovereign Funds Rally Against Manager ‘Super-Profits’

Opaque fee structures and inflated transaction costs became targets at SWFs' annual meeting.

Sovereign wealth funds must begin exerting collective pressure on the financial industry over costs, New Zealand Super’s chief told members of the International Forum of Sovereign Wealth Funds (IFSWF). 

“The days of opaque fee structures—enabled by asymmetric information and as a shield for the supply of ill-defined skill—must be curtailed,” said Adrian Orr, IFSWF chair, at the group’s annual meeting on Wednesday.

“Achieving acceptance for our definition of what it means to be a good sovereign investor obliges us to show how we have attempted to be one.” —Adrian OrrNearly 80% of global SWF capital belongs to members of the group, including the Abu Dhabi, Kuwait, and Qatar investment authorities, Norway’s Government Pension Fund, and the China Investment Corporation. 

Orr, speaking in Milan, told these global players they together “pose credible pressure on the established investment model.” 

Taking on asset managers isn’t new for the sovereign fund community. They have been among the most aggressive asset owners in litigating against financial firms over crisis-era loses, including Libya’s ongoing $1 billion case against Goldman Sachs. 

Rallying member buy-in for other goals Orr laid out may be more of a challenge. 

“Let us show the world how we are progressing,” he told the group—which includes notoriously secretive Middle Eastern funds—in calling for transparency. “Achieving acceptance for our definition of what it means to be a good sovereign investor obliges us to show how we have attempted to be one. Not doing so bankrupts the principles, leaving them worthless for all.”

Whereas most asset owner associations represent members with similar reporting mandates, IFSWF comprises both the world’s most opaque funds (Kuwait and Qatar’s, for example) and the most transparent, including Orr’s own. 

He pressed attendees to “retain the initiative and own the narrative about ourselves,” and reminded them of their pre-crisis reputation as “agents of the state” and “hot money.”

Despite all of members’ differing political positions—Iranian, Palestinian, and American funds, for example—Orr stressed how they belong to the same team. The IFSWF’s permanent staff “are working on comparison, co-operation and perhaps in-time, co-investment,” he said. “All activities that benefit each member, and the global financial community, if we get it right.”

Related: Slow Progress on SWF Governance Standards & Goldman Accused Over ‘Unsuitable’ Derivatives Trades