IMFSurvey Magazine: In the News
SOVEREIGN WEALTH FUNDS
Sovereign Funds Set Up Permanent Representative Forum
By Jukka Pihlman
IMF Monetary and Capital Markets Department
May 6, 2009
- Forum aims to exchange views, promote understanding of sovereign funds
- Inaugural meeting of Forum will be held in Baku, Azerbaijan in October 2009
- Sovereign wealth funds continue to face difficult investment environment
Sovereign wealth funds (SWFs) that control billions of dollars in investments around the world last month established a standing global forum to discuss issues central to sovereign funds and the broader international financial community.
The International Forum of Sovereign Wealth Funds will also keep under review issues relating to the Santiago Principles, designed to ensure an open international investment environment.
The International Working Group of Sovereign Wealth Funds (IWG) representing 23 countries with sovereign wealth funds, held its fourth meeting in Kuwait City on April 5–6, 2009. The Kuwait Declaration, issued at the end of the two-day meeting hosted by the Kuwait Investment Authority and the State of Kuwait, set up the Forum and promised to maintain an agenda of SWF issues.
The Forum, which is a voluntary group, intends to meet at least once a year to exchange views on issues of common interest and promote understanding of the Santiago Principles and SWFs’ activities. The Santiago Principles, which aim to help maintain a stable global financial system and free flow of capital and investment, were agreed in 2008.The inaugural meeting of the Forum will be held in Baku, Azerbaijan in October 2009.
The Forum will initially comprise IWG members (see box) but membership is open to SWFs that meet the Santiago Principles definition of an SWF and endorse the Principles. SWFs are defined as special purpose investment funds or arrangements, owned by the general government. Created by the general government for macroeconomic purposes, SWFs hold, manage, or administer assets to achieve financial objectives, and employ a set of investment strategies that include investing in foreign financial assets. These exclude, among other elements, foreign currency reserve assets held by monetary authorities for the traditional balance of payments or monetary policy purposes, state-owned enterprises in the traditional sense, government-employee pension funds, or assets managed for the benefit of individuals.
Cross-border capital flow
Following the Santiago Principles objectives, the Forum will contribute to the development and maintenance of an open and stable investment environment, and facilitate communication among SWFs, as well as with recipient country officials, representatives of multilateral organizations such as the European Commission and the Organization for Economic Cooperation and Development, and the private sector.
IWG member countries
Australia, Azerbaijan, Bahrain, Botswana, Canada, Chile, China, Equatorial Guinea, Iran, Ireland, South Korea, Kuwait, Libya, Mexico, New Zealand, Norway, Qatar, Russia, Singapore, Timor-Leste, Trinidad and Tobago, United Arab Emirates, United States
The Forum will also help members exchange views on SWF activities, risk management, investment regimes, market and institutional conditions affecting investment operations, and interactions with the economic and financial stability framework.
Work plan under way
David Murray, Chairman of Australia’s Future Fund Board of Guardians, was elected Chair of the Forum. China Investment Corporation Board of Supervisors Chairman Jin Liqun and Kuwait Investment Authority Managing Director Bader Mohammad Al-Sa’ad were elected Deputy Chairs.
The Forum will have a professional secretariat. Recognizing IMF staff’s contribution to the work of the IWG and its experience in multilateral work, the Forum asked IMF staff to initially undertake the role of Forum secretariat.
Sovereign funds Forum Chair David Murray (c) with Deputy Chairs Jin Liqun (l) and Bader Mohammad Al-Sa’ad at Kuwait meeting (IMF photo)
The Forum also established three subcommittees to carry out its work plan. These panels will work on experiences in application of the Santiago Principles; investment and risk management practices; and the international investment environment and recipient country relationships, including cross-border investment regime issues.
SWFs have not been spared the effects of the global financial crisis and the sharp downturn in asset prices since early 2008. With the benchmark S&P 500 U.S. share index down 38 per cent and MSCI World Equity index plummeting 42 per cent in 2008, many SWFs also suffered losses.
While they are largely unrealized, as many SWFs are long-term investors and have not needed to liquidate positions, communicating these losses to stakeholders such as the government and the public at large has become a major task for SWFs. The Forum could help SWFs learn from one another how to deal with this and related policy and operational issues.
Sovereign funds Forum Chair Murray (c) with Deputy Chair Liqun (r) and IMF’s Udaibir Das at Kuwait meeting’s press conference (IMF photo)