Dubai: Sovereign wealth funds (SWFs), which have become major investment vehicles in the global economy over the past few years, will study the creation of a permanent international body, it was disclosed on Saturday.
The International Working Group of Sovereign Wealth Funds (IWG) yesterday presented the Santiago Principles to the International Monetary Fund's (IMF) policy-guiding International Monetary and Fin-ancial Committee (IMFC), which met in Washington to consult on global econ-omic developments and to take stock of the working group's efforts.
The IWG has made public a set of 24 voluntary principles and related explanatory material at www.iwg-swf.org, and announced it has established a Formation Committee to explore the creation of a permanent international sovereign wealth fund body.
Hamad Al Suwaidi, Undersecretary of the Abu Dhabi Department of Fin-ance and a director of the Abu Dhabi Investment Authority (Adia), said, "We believe this document will improve the understanding of the objectives, structures and governance arrangements of SWFs; enhance the understanding of SWFs as economically and financially oriented entities and help maintain an open and stable investment climate. Through the implementation of the Santiago Principles we seek to ensure that the international investment environment will remain open and our capital can continue to be put to use when it is most needed.
"Moreover, there are provisions confirming the IWG's expectations that recipient countries will not subject the SWFs to discriminatory measures to which other foreign or domestic investors in similar circumstances are not subjected. We trust the recipient countries will support these provisions."
The following key areas are covered in the principles: (i) legal framework, objectives, and co-ordination with macroeconomic policies; (ii) institutional framework and governance structure; and (iii) investment and risk management framework.
The guiding purpose of these principles is to:
1. have in place a transparent and sound governance structure that provides for adequate operational controls, risk management and accountability;
2. ensure compliance with regulatory and disclosure requirements in the countries where SWFs invest;
3. ensure SWFs invest on the basis of economic and financial risk and return-related considerations; and
4. help maintain a stable global financial system and free flow of capital and investment.
SWFs are defined as special purpose investment funds or arrangements, owned by the general government.
Created by the general government for macroeconomic purposes, the sovereign funds hold, manage or administer assets to achieve financial objectives, and employ a set of investment strategies which include investing in foreign financial assets.
The SWFs are commonly established out of balance of payments surpluses, official foreign currency operations, the proceeds of privatisations, fiscal surpluses, and/or receipts resulting from commodity exports.
Foreign currency reserve assets held by monetary authorities for the traditional balance of payments or monetary policy purposes, operations of state-owned enterprises in the traditional sense, government-employee pension funds, or assets managed for the benefit of individuals, are not deemed to be sovereign wealth funds.