## 1. Asset Allocations at Sovereign Wealth Fund, by Type of Fund

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### Background and motivation
- Total assets under management by Sovereign Wealth Funds (SWFs) have been growing rapidly; upper-end estimates indicate total SWF assets of around US$5 trillion.
- Based on the International Working Group (IWG) definition (which excludes central banks and state-owned enterprises) and publicly available data for thirty SWFs, total assets are about US$3 trillion (IMF 2012).
- SWFs affect macroeconomic management and global financial stability through links with public finances, monetary policy, and external accounts.
  - Saving funds heavily invested in equities experienced large losses in the sharp decline in equity markets but recovered most losses by demonstrating long-term investment horizons (IMF 2011; Papaioannou and others, 2013).
  - Official reserve managers reduced exposure to commercial bank deposits (Pihlman and van der Hoorn, 2010).
- Core requirements for achieving sovereign investor objectives:
  - Sound governance structure.
  - Appropriate investment strategies.
  - Close coordination with macroeconomic policies and management of other public assets and liabilities.

### Objectives and governance structure
- SWF policy objectives vary by macrofiscal goals; governance must ensure clear separation of responsibilities and authority to limit risks.
- Five types of SWFs (IMF and Santiago Principles taxonomy):
  - Stabilization funds: invest over 80 percent of assets in fixed income; government securities around 70 percent of total assets.
  - Savings funds: allocate over 70 percent to equities and other investments.
  - Development funds: allocate to priority socio-economic projects, usually infrastructure.
  - Pension reserve funds: hold high shares in equities and other investments.
  - Reserve investment corporations: higher allocations in equities and alternative investments — examples given up to 50 percent (South Korea) and 75 percent (Singapore's GIC).
- Asset-allocation observations:
  - Equities share increases from 0–5 percent for stabilization funds to around 40 percent in pension reserve funds, and around 60 percent for saving funds and reserve investment funds.
- Macroeconomic roles and coordination:
  - Fiscal policy: affected by SWF funding and withdrawal rules, often derived from fiscal rules or Permanent-Income-Hypothesis considerations.
  - Monetary policy: impacted by wide fluctuations in fiscal revenues and procyclical aggregate demand effects.
  - Exchange rate: investing resources abroad can mitigate exchange rate variations.
  - Optimal policy should consider the consolidated sovereign balance sheet rather than optimizing isolated balance sheets (Das et al. 2012).
- Legal and institutional framework points:
  - Legal framework should (i) define legal form and relationships with state bodies, (ii) be consistent with budgetary processes, (iii) ensure legal soundness of transactions, (iv) support stated economic and financial objectives, and (v) promote governance, accountability, transparency.
  - Typical legal forms: separate legal entities under law; state-owned corporations; or pools of assets owned by the state or central bank.
  - Institutional models:
    - Manager model with three sub-categories: central bank manager; separate fund management entity owned by government; ministry of finance contracting external private managers (the latter generally not recommended).
    - Investment company model used for concentrated investments and active ownership (e.g., Temasek).
  - Generic governance structure distinguishes owner, governing bodies (executive board, CEO, managers), and supervisory bodies (auditor general, external auditor, internal auditor, compliance unit).
- Governance principles:
  - Trusteeship concept: managers as trustees on behalf of the people.
  - Clear, transparent division of roles and responsibilities to ensure accountability.
  - Owner (e.g., parliament/ministry of finance) should determine aggregate level of risk; formal processes should set risk guidelines.

### Investment management
- Investment mandate and objectives:
  - Owner (usually ministry of finance) sets investment policy after advice from investment committee/board and stakeholder consultations.
  - Two key determinants for mandate: (i) the SWF objective and (ii) the SWF's risk-bearing capacity.
  - Longer investment horizons imply higher capacity to take on investment risks; short horizons signal lower scope for exposure to risky assets.
- Risk tolerance:
  - Risk is multi-dimensional; volatility of returns is common but limited as a sole measure.
  - For intergenerational savings funds, low-volatility fixed-income strategies can be "risky" if they lock in low or negative expected real returns that fail the fund's primary objective.
  - Risk tolerance should be articulated and can be translated into quantifiable measures such as shortfall probability, probability of not achieving a certainty return target, worst-case outcome at a confidence level, probability of achieving return targets over twenty years, or probability of negative accumulated real return after fifteen years.
  - Examples of explicit formulations: "the prospective losses from the fund shall not exceed x percent over a period of y years."
  - Alternative where explicit measures are too abstract: setting broad asset allocation guidelines implying implicit risk tolerance.
- Investment policy and strategic asset allocation (SAA):
  - SAA sets target allocation to asset classes; SAA-based model assumes exposure to asset mix is the main determinant of risk and return.
  - Reference portfolio approach (Canada Pension Plan, New Zealand Superannuation Fund) gives more discretion to manager with a hypothetical mix as guide.
  - Ownership of SAA decisions:
    - Typical: owner approves SAA and policy benchmark; manager implements and holds active risk for residual deviations.
    - Less typical: manager owns SAA and is fully responsible for total return and deviations (adopted by Singapore).
  - In typical approach the policy benchmark represents on average about 80–95 percent of overall risk.
- Investment implementation considerations:
  - Choice of numeraire currency matters for purchasing power and perceived currency risk; numeraire ideally a basket approximating long-run procurements or proxies such as GDP-weighted or market capitalization-weighted baskets.
  - Rebalancing policy should trade off transaction costs versus tolerance for drift from SAA.
  - Benchmarks for asset classes should be objective, complete, replicable, investable, and accepted by investors.
  - Active risk budgeting framework recommended to allocate more active risk to managers with better expected risk-adjusted returns.
  - Choice between internal and external management must be clearly defined; selection and monitoring procedures for external managers are essential.
- Asset composition and performance:
  - Investment performance driven by predominance of fixed income, equities, or diversified portfolios (illustrated with selected SWFs showing time series from 2007–2012).
  - Transition into alternatives (private equity, real estate, hedge funds) requires enhanced resources, capacity, governance, managerial and operational capabilities (example: Norges Bank Investment Management took more than twelve years before first investment outside public markets and four years after parliament approved 5 percent allocation to global real estate).
- Derivatives policy:
  - Derivatives can improve efficiency, enable active strategies, and hedge risks but introduce leverage, complexity, and counterparty risk.
  - Derivatives policy should: (i) enumerate permissible derivatives by purpose and submandate; (ii) impose limits on derivative transaction sizes by instrument type; and (iii) require separate monitoring and reporting of derivatives use and their risk and performance impact.

### Risk management
- Risk management framework principles: clearly delegated mandates, defined roles and responsibilities, accountability, transparency, professionalism.
- Scope of risks to cover: market risk, credit risk, operational risk, liquidity risk, legal risk, regulatory risk, agency risk, governance risk, reputation risk.
- Risk management components:
  - Risk policies and procedures endorsed by the board and implemented by the CEO.
  - Risk identification processes.
  - Risk measurement methodologies to compare different risk dimensions and factor into performance measurement.
  - Risk monitoring operational processes to ensure compliance with policies.
  - Risk reporting (internal).
  - Risk verification and audit to ensure systems and techniques are effective.
- Financial risk specifics:
  - Ex-ante market risk decomposed into SAA risk and active risk; active risk arises from deviations due to rebalancing imperfections and active submandate management.
  - Comprehensive credit risk framework should cover issuer credit risk, counterparty risk, deposit default risk, with appropriate limits and monitoring.
- Operational risk specifics:
  - Objective is mitigation to acceptable levels; operational risks are endogenous and can cause significant losses.
  - Key tool: internal organizational structure with clear segregation of duties (execution vs operations/compliance/performance/settlement/accounting).
  - New product/new market process: structured process required to avoid persistent work-arounds and operational errors.
  - Public disclosure of risk management approach enhances domestic and international confidence.

### Disclosure and transparency
- Communication with stakeholders (general public, parliament, NGOs, financial markets) is critical to maintain legitimacy and credibility.
- Reporting distinctions:
  - External reporting supports transparency and legitimacy, demonstrates economic and financial orientation, and helps stability in international markets.
  - Internal reporting is integral to delegated asset management and essential for decision making, risk management and supervision.
- Common transparency practices:
  - Educational seminars, media engagement, self-assessment against GAPP/Santiago Principles, annual reports, active websites.
  - Annual reports often include asset allocation evolution and financial statements; scope can be enhanced by including forward-looking and analytical features and reporting returns over longer rolling periods (e.g., 10 or 20 years).
- Self-assessments against Santiago Principles help assure stakeholders that SWF activities are based on economic and financial considerations and contribute to global financial stability.

### Concluding remarks and policy implications
- SWF assets have grown rapidly driven by balance of payment surpluses and commodity prices.
- Policy objectives vary by country circumstances; SWFs warrant close coordination with macroeconomic policies and public asset/liability management.
- Institutional arrangements should be appropriate and commensurate with objectives and nature of investments; organizational structures must establish clear separation of responsibilities and authority.
- Governance should provide for real delegation to an independent operational manager within limits on risk/asset allocation set by the owner.
- Investment mandates must align with objectives and risk-bearing capacity; an explicit risk tolerance level is recommended to ensure consistent risk-bearing capacity and accountability.
- SAA tends to be the benchmark for SWF risk and performance.
- Risk management frameworks must mirror governance principles: delegation, defined roles, accountability, transparency, professionalism.
- Human resources: asset management skills and good HR policies are critical for attracting and retaining competent staff; access to specialized skills is necessary for successful SWF management.

### Appendix 1. Santiago Principles (selected GAPP)
- Legal framework and policy purpose
  - GAPP 1. The legal framework for the SWF should be sound and support its effective operation and the achievement of its stated objective(s).
  - GAPP 2. The policy purpose of the SWF should be clearly defined and publicly disclosed.
  - GAPP 3. Where the SWF‘s activities have significant direct domestic macroeconomic implications, those activities should be closely coordinated with the domestic fiscal and monetary authorities, so as to ensure consistency with the overall macroeconomic policies.
  - GAPP 4. There should be clear and publicly disclosed policies, rules, procedures, or arrangements in relation to the SWF‘s general approach to funding, withdrawal, and spending operations.
  - GAPP 5. The relevant statistical data pertaining to the SWF should be reported on a timely basis to the owner, or as otherwise required, for inclusion where appropriate in macroeconomic data sets.
- Governance, roles, and accountability
  - GAPP 6. The governance framework for the SWF should be sound and establish a clear and effective division of roles and responsibilities in order to facilitate accountability and operational independence in the management of the SWF to pursue its objectives.
  - GAPP 7. The owner should set the objectives of the SWF, appoint the members of its governing body(ies) in accordance with clearly defined procedures, and exercise oversight over the SWF‘s operations.
  - GAPP 8. The governing body(ies) should act in the best interests of the SWF, and have a clear mandate and adequate authority and competency to carry out its functions.
  - GAPP 9. The operational management of the SWF should implement the SWF‘s strategies in independent manner and in accordance with clearly defined responsibilities.
  - GAPP 10. The accountability framework for the SWF‘s operations should be clearly defined in the relevant legislation, charter, other constitutive documents, or management agreement.
- Transparency, reporting, and external assurance
  - GAPP 11. An annual report and accompanying financial statements on the SWF‘s operations and performance should be prepared in a timely fashion and in accordance with recognized international or national accounting standards in a consistent manner.
  - GAPP 12. The SWF‘s operations and financial statements should be audited annually in accordance with recognized international or national auditing standards in a consistent manner.
  - GAPP 16. The governance framework and objectives, as well as the manner in which the SWF‘s management is operationally independent from the owner, should be publicly disclosed.
  - GAPP 17. Relevant financial information regarding the SWF should be publicly disclosed to demonstrate its economic and financial orientation, so as to contribute to stability in international financial markets and enhance trust in recipient countries.
  - GAPP 24. A process of regular review of the implementation of the GAPP should be engaged in by or on behalf of the SWF.
- Ethical standards, operational conduct, and compliance
  - GAPP 13. Professional and ethical standards should be clearly defined and made known to the members of the SWF‘s governing bodies, management, and staff.
  - GAPP 14. Dealing with third parties for the purpose of the SWF‘s operational management should be based on economic and financial grounds, and follow clear rules and procedures.
  - GAPP 15. SWF operations and activities in host countries should be conducted in compliance with all applicable regulatory and disclosure requirements of the countries in which they operate.
- Investment policy, ownership rights, and risk management
  - GAPP 18. The SWF‘s investment policy should be clear and consistent with its defined objectives, risk tolerance, and investment strategy, as set by the owner or the governing bodies, and be based on sound portfolio management principles.
  - GAPP 19. The SWF‘s investment decisions should aim to maximize risk-adjusted financial returns in a manner consistent with its investment policy, and based on economic and financial grounds.
  - GAPP 20. The SWF should not seek or take advantage of privileged information or inappropriate influence by the broader government in competing with private entities.
  - GAPP 21. SWFs view shareholder ownership rights as a fundamental element of their equity investments‘ value. If an SWF chooses to exercise its ownership rights, it should do so in a manner that is consistent with its investment policy and protects the financial value of its investments. The SWF should publicly disclose its general approach to voting securities of listed entities, including the key factors guiding its exercise of ownership rights.
  - GAPP 22. The SWF should have a framework that identifies, assesses, and manages the risks of its operations.
  - GAPP 23. The assets and investment performance (absolute and relative to benchmarks, if any) of the SWF should be measured and reported to the owner according to clearly defined principles or standards.

*Source: Excerpt from IMF working paper content unit _wp13231.*

### 1. Asset Allocations at Sovereign Wealth Fund, by Type of Fund ............................................5

### 1. Asset Allocations at Sovereign Wealth Fund, by Type of Fund ............................................5

### Major themes and section inventory
- 1. Asset Allocations at Sovereign Wealth Fund, by Type of Fund ............................................5
- 2. Main Elements of SWF Policy ..............................................................................................8
- 3. Investment Models ...............................................................................................................11
- 4. An Illustrative SWF Government Structure ........................................................................12
- 5. Roles and Responsibilities of Owner and Fund Manager ....................................................18
- 6. Selected SWFs‘ Performance Based on Asset Composition ...............................................20
- 7. An Illustrative Example of Internal Organizational Chart ...................................................25
- 8. SWFs Perception of Value of Transparency ........................................................................26

### Appendices (listed)
- Appendix 1. Santiago Principles...............................................................................................................29
- Appendix 2. Selected Sovereign Wealth Funds .......................................................................................31
- Appendix 3. Basic Principles of Risk Management .................................................................................32

*Source: _wp13231 - 1. Asset Allocations at Sovereign Wealth Fund, by Type of Fund ............................................5 (PDF chapter/section)*

### References .............................................................................................................

### References

### I. Background and motivation
- Total assets under management by Sovereign Wealth Funds (SWFs) have been growing rapidly; upper-end estimates indicate total SWF assets of around US$5 trillion.
- Based on the International Working Group (IWG) definition (which excludes central banks and state-owned enterprises) and publicly available data for thirty SWFs, total assets are about US$3 trillion (IMF 2012).
- SWFs affect macroeconomic management and global financial stability through links with public finances, monetary policy, and external accounts; examples from the global financial crisis:
  - Saving funds heavily invested in equities experienced large losses in the sharp decline in equity markets but recovered most losses by demonstrating long-term investment horizons (IMF 2011; Papaioannou and others, 2013).
  - Official reserve managers reduced exposure to commercial bank deposits (Pihlman and van der Hoorn, 2010).
- Core requirements for achieving sovereign investor objectives:
  - Sound governance structure.
  - Appropriate investment strategies.
  - Close coordination with macroeconomic policies and management of other public assets and liabilities.

### II. Objectives and governance structure
- SWF policy objectives vary by macrofiscal goals; governance must ensure clear separation of responsibilities and authority to limit risks.
- Five types of SWFs (IMF and Santiago Principles taxonomy):
  - Stabilization funds: invest over 80 percent of assets in fixed income; government securities around 70 percent of total assets.
  - Savings funds: allocate over 70 percent to equities and other investments.
  - Development funds: allocate to priority socio-economic projects, usually infrastructure.
  - Pension reserve funds: hold high shares in equities and other investments.
  - Reserve investment corporations: higher allocations in equities and alternative investments — examples given up to 50 percent (South Korea) and 75 percent (Singapore's GIC).
- Asset-allocation observations:
  - Equities share increases from 0–5 percent for stabilization funds to around 40 percent in pension reserve funds, and around 60 percent for saving funds and reserve investment funds.
- Macroeconomic roles and coordination:
  - Fiscal policy: affected by SWF funding and withdrawal rules, often derived from fiscal rules or Permanent-Income-Hypothesis considerations.
  - Monetary policy: impacted by wide fluctuations in fiscal revenues and procyclical aggregate demand effects.
  - Exchange rate: investing resources abroad can mitigate exchange rate variations.
  - Optimal policy should consider the consolidated sovereign balance sheet rather than optimizing isolated balance sheets (Das et al. 2012).
- Legal and institutional framework points:
  - Legal framework should (i) define legal form and relationships with state bodies, (ii) be consistent with budgetary processes, (iii) ensure legal soundness of transactions, (iv) support stated economic and financial objectives, and (v) promote governance, accountability, transparency.
  - Typical legal forms: separate legal entities under law; state-owned corporations; or pools of assets owned by the state or central bank.
  - Institutional models:
    - Manager model with three sub-categories: central bank manager; separate fund management entity owned by government; ministry of finance contracting external private managers (the latter generally not recommended).
    - Investment company model used for concentrated investments and active ownership (e.g., Temasek).
  - Generic governance structure distinguishes owner, governing bodies (executive board, CEO, managers), and supervisory bodies (auditor general, external auditor, internal auditor, compliance unit).
- Governance principles:
  - Trusteeship concept: managers as trustees on behalf of the people.
  - Clear, transparent division of roles and responsibilities to ensure accountability.
  - Owner (e.g., parliament/ministry of finance) should determine aggregate level of risk; formal processes should set risk guidelines.

### III. Investment management
- Investment mandate and objectives:
  - Owner (usually ministry of finance) sets investment policy after advice from investment committee/board and stakeholder consultations.
  - Two key determinants for mandate: (i) the SWF objective and (ii) the SWF's risk-bearing capacity.
  - Longer investment horizons imply higher capacity to take on investment risks; short horizons signal lower scope for exposure to risky assets.
- Risk tolerance:
  - Risk is multi-dimensional; volatility of returns is common but limited as a sole measure.
  - For intergenerational savings funds, low-volatility fixed-income strategies can be "risky" if they lock in low or negative expected real returns that fail the fund's primary objective.
  - Risk tolerance should be articulated and can be translated into quantifiable measures such as shortfall probability, probability of not achieving a certainty return target, worst-case outcome at a confidence level, probability of achieving return targets over twenty years, or probability of negative accumulated real return after fifteen years.
  - Examples of explicit formulations: "the prospective losses from the fund shall not exceed x percent over a period of y years."
  - Alternative where explicit measures are too abstract: setting broad asset allocation guidelines implying implicit risk tolerance.
- Investment policy and strategic asset allocation (SAA):
  - SAA sets target allocation to asset classes; SAA-based model assumes exposure to asset mix is the main determinant of risk and return.
  - Reference portfolio approach (Canada Pension Plan, New Zealand Superannuation Fund) gives more discretion to manager with a hypothetical mix as guide.
  - Ownership of SAA decisions:
    - Typical: owner approves SAA and policy benchmark; manager implements and holds active risk for residual deviations.
    - Less typical: manager owns SAA and is fully responsible for total return and deviations (adopted by Singapore).
  - In typical approach the policy benchmark represents on average about 80–95 percent of overall risk.
- Investment implementation considerations:
  - Choice of numeraire currency matters for purchasing power and perceived currency risk; numeraire ideally a basket approximating long-run procurements or proxies such as GDP-weighted or market capitalization-weighted baskets.
  - Rebalancing policy should trade off transaction costs versus tolerance for drift from SAA.
  - Benchmarks for asset classes should be objective, complete, replicable, investable, and accepted by investors.
  - Active risk budgeting framework recommended to allocate more active risk to managers with better expected risk-adjusted returns.
  - Choice between internal and external management must be clearly defined; selection and monitoring procedures for external managers are essential.
- Asset composition and performance:
  - Investment performance driven by predominance of fixed income, equities, or diversified portfolios (illustrated with selected SWFs showing time series from 2007–2012).
  - Transition into alternatives (private equity, real estate, hedge funds) requires enhanced resources, capacity, governance, managerial and operational capabilities (example: Norges Bank Investment Management took more than twelve years before first investment outside public markets and four years after parliament approved 5 percent allocation to global real estate).
- Derivatives policy:
  - Derivatives can improve efficiency, enable active strategies, and hedge risks but introduce leverage, complexity, and counterparty risk.
  - Derivatives policy should: (i) enumerate permissible derivatives by purpose and submandate; (ii) impose limits on derivative transaction sizes by instrument type; and (iii) require separate monitoring and reporting of derivatives use and their risk and performance impact.

### IV. Risk management
- Risk management framework principles: clearly delegated mandates, defined roles and responsibilities, accountability, transparency, professionalism.
- Scope of risks to cover: market risk, credit risk, operational risk, liquidity risk, legal risk, regulatory risk, agency risk, governance risk, reputation risk.
- Risk management components:
  - Risk policies and procedures endorsed by the board and implemented by the CEO.
  - Risk identification processes.
  - Risk measurement methodologies to compare different risk dimensions and factor into performance measurement.
  - Risk monitoring operational processes to ensure compliance with policies.
  - Risk reporting (internal).
  - Risk verification and audit to ensure systems and techniques are effective.
- Financial risk specifics:
  - Ex-ante market risk decomposed into SAA risk and active risk; active risk arises from deviations due to rebalancing imperfections and active submandate management.
  - Comprehensive credit risk framework should cover issuer credit risk, counterparty risk, deposit default risk, with appropriate limits and monitoring.
- Operational risk specifics:
  - Objective is mitigation to acceptable levels; operational risks are endogenous and can cause significant losses.
  - Key tool: internal organizational structure with clear segregation of duties (execution vs operations/compliance/performance/settlement/accounting).
  - New product/new market process: structured process required to avoid persistent work-arounds and operational errors.
  - Public disclosure of risk management approach enhances domestic and international confidence.

### V. Disclosure and transparency
- Communication with stakeholders (general public, parliament, NGOs, financial markets) is critical to maintain legitimacy and credibility.
- Reporting distinctions:
  - External reporting supports transparency and legitimacy, demonstrates economic and financial orientation, and helps stability in international markets.
  - Internal reporting is integral to delegated asset management and essential for decision making, risk management and supervision.
- Common transparency practices:
  - Educational seminars, media engagement, self-assessment against GAPP/Santiago Principles, annual reports, active websites.
  - Annual reports often include asset allocation evolution and financial statements; scope can be enhanced by including forward-looking and analytical features and reporting returns over longer rolling periods (e.g., 10 or 20 years).
- Self-assessments against Santiago Principles help assure stakeholders that SWF activities are based on economic and financial considerations and contribute to global financial stability.

### VI. Concluding remarks and policy implications
- SWF assets have grown rapidly driven by balance of payment surpluses and commodity prices.
- Policy objectives vary by country circumstances; SWFs warrant close coordination with macroeconomic policies and public asset/liability management.
- Institutional arrangements should be appropriate and commensurate with objectives and nature of investments; organizational structures must establish clear separation of responsibilities and authority.
- Governance should provide for real delegation to an independent operational manager within limits on risk/asset allocation set by the owner.
- Investment mandates must align with objectives and risk-bearing capacity; an explicit risk tolerance level is recommended to ensure consistent risk-bearing capacity and accountability.
- SAA tends to be the benchmark for SWF risk and performance.
- Risk management frameworks must mirror governance principles: delegation, defined roles, accountability, transparency, professionalism.
- Human resources: asset management skills and good HR policies are critical for attracting and retaining competent staff; access to specialized skills is necessary for successful SWF management.

*Source: Excerpt from IMF working paper content unit _wp13231 - References.*

### APPENDIX 1. SANTIAGO PRINCIPLES

### APPENDIX 1. SANTIAGO PRINCIPLES

### Legal framework and policy purpose
- GAPP 1. The legal framework for the SWF should be sound and support its effective operation and the achievement of its stated objective(s).
- GAPP 2. The policy purpose of the SWF should be clearly defined and publicly disclosed.
- GAPP 3. Where the SWF‘s activities have significant direct domestic macroeconomic implications, those activities should be closely coordinated with the domestic fiscal and monetary authorities, so as to ensure consistency with the overall macroeconomic policies.
- GAPP 4. There should be clear and publicly disclosed policies, rules, procedures, or arrangements in relation to the SWF‘s general approach to funding, withdrawal, and spending operations.
- GAPP 5. The relevant statistical data pertaining to the SWF should be reported on a timely basis to the owner, or as otherwise required, for inclusion where appropriate in macroeconomic data sets.

### Governance, roles, and accountability
- GAPP 6. The governance framework for the SWF should be sound and establish a clear and effective division of roles and responsibilities in order to facilitate accountability and operational independence in the management of the SWF to pursue its objectives.
- GAPP 7. The owner should set the objectives of the SWF, appoint the members of its governing body(ies) in accordance with clearly defined procedures, and exercise oversight over the SWF‘s operations.
- GAPP 8. The governing body(ies) should act in the best interests of the SWF, and have a clear mandate and adequate authority and competency to carry out its functions.
- GAPP 9. The operational management of the SWF should implement the SWF‘s strategies in independent manner and in accordance with clearly defined responsibilities.
- GAPP 10. The accountability framework for the SWF‘s operations should be clearly defined in the relevant legislation, charter, other constitutive documents, or management agreement.

### Transparency, reporting, and external assurance
- GAPP 11. An annual report and accompanying financial statements on the SWF‘s operations and performance should be prepared in a timely fashion and in accordance with recognized international or national accounting standards in a consistent manner.
- GAPP 12. The SWF‘s operations and financial statements should be audited annually in accordance with recognized international or national auditing standards in a consistent manner.
- GAPP 16. The governance framework and objectives, as well as the manner in which the SWF‘s management is operationally independent from the owner, should be publicly disclosed.
- GAPP 17. Relevant financial information regarding the SWF should be publicly disclosed to demonstrate its economic and financial orientation, so as to contribute to stability in international financial markets and enhance trust in recipient countries.
- GAPP 24. A process of regular review of the implementation of the GAPP should be engaged in by or on behalf of the SWF.

### Ethical standards, operational conduct, and compliance
- GAPP 13. Professional and ethical standards should be clearly defined and made known to the members of the SWF‘s governing bodies, management, and staff.
- GAPP 14. Dealing with third parties for the purpose of the SWF‘s operational management should be based on economic and financial grounds, and follow clear rules and procedures.
- GAPP 15. SWF operations and activities in host countries should be conducted in compliance with all applicable regulatory and disclosure requirements of the countries in which they operate.

### Investment policy, ownership rights, and risk management
- GAPP 18. The SWF‘s investment policy should be clear and consistent with its defined objectives, risk tolerance, and investment strategy, as set by the owner or the governing bodies, and be based on sound portfolio management principles.
- GAPP 19. The SWF‘s investment decisions should aim to maximize risk-adjusted financial returns in a manner consistent with its investment policy, and based on economic and financial grounds.
- GAPP 20. The SWF should not seek or take advantage of privileged information or inappropriate influence by the broader government in competing with private entities.
- GAPP 21. SWFs view shareholder ownership rights as a fundamental element of their equity investments‘ value. If an SWF chooses to exercise its ownership rights, it should do so in a manner that is consistent with its investment policy and protects the financial value of its investments. The SWF should publicly disclose its general approach to voting securities of listed entities, including the key factors guiding its exercise of ownership rights.
- GAPP 22. The SWF should have a framework that identifies, assesses, and manages the risks of its operations.
- GAPP 23. The assets and investment performance (absolute and relative to benchmarks, if any) of the SWF should be measured and reported to the owner according to clearly defined principles or standards.

*Source: APPENDIX 1. SANTIAGO PRINCIPLES (content unit: _wp13231 - APPENDIX 1. SANTIAGO PRINCIPLES).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp13231.pdf_