The conflicting modern-day purposes of sovereign wealth funds – to grow capital by investing globally and to be a stabilising force for their domestic economies – make it necessary to revise the Santiago Principles, argues Udaibir Das, division chief, monetary and capital markets department, at the International Monetary Fund.
“When they were written 10 years ago, it was only from the lens of the global mandate of SWFs,” Das said. “But look what’s happened since then, several members of the IFSWF have been challenged; the stabilisation function has overtaken investing abroad. It’s a tension that everyone in the room has felt, you can liquidate investments abroad that could have the impact on the international financial system but at the same time domestic situations need to be addressed.”
Speaking at the International Forum of Sovereign Wealth Funds conference in Morocco, on a panel reflecting on 10 years of the Santiago Principles, Das also said that when the principles were formed, there was no massive policy focus on financial integrity, governance corruption, accountability and geopolitical risk, as there is today.
“The issue for me now is it’s not about returns only, it’s safety, security and the surety and sustainability of the money given to the SWFs to trust and keep intergernerationally,” he said.
Das suggested a forward agenda for the SWFs, in what he called the Marrakesh 7.
He urged the following:
- Bond – remain together, get closer, communicate
- Review – the Santiago Principles, a forward-looking vision statement for the IFSFW, Santiago Principles version 2
- Value – seek it first for the members, but members and for others
- Co-operation – co-operative completion, co-investing, technical co-operation, in-house capability, analytics
- Global – regulations and international discussion
- Local – remember you are part of the domestic sovereign balance sheet and macro-fiscal framework
- Trust – engender trust and confidence, explain, disclose, bring about reform.
The panel, chaired by Edwin Truman from the Peterson Institute for International Economics, also recognised that the Santiago Principles had moved the dial on transparency and accountability for sovereign wealth funds.
Mohmoud AA Mahmoud, director of the legal and compliance department, Kuwait Investment Authority, who said thanks to the Santiago Principles there were two draft bills in Kuwaiti Parliament in favour of more transparency.
“We have to prove we are not doing something wrong, show the world we do invest for specific purposes and reasons,” he said.