IMF Survey: Wealth Funds' Long-Term View May Help Stabilize Markets
IMF News, October 16, 2008
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Bibliographic details
- Published: October 16, 2008
Publication and context
- IMF Survey online interview published October 16, 2008.
- Interviewee: IWG co-Chair Hamad Al Suwaidi, conducted during the 2008 IMF-World Bank Annual Meetings in Washington, D.C.
- The International Working Group of Sovereign Wealth Funds (IWG) published October 11 a set of 24 voluntary principles—dubbed the Santiago Principles—designed to ensure an open international investment environment.
- The IWG was established to meet the request from the IMFC at its 2008 Spring meeting to draft a set of principles; that drafting task ends with the publication of the Santiago Principles.
Key findings and analysis
- Purpose and expected effects of the Santiago Principles:
- Publication of the Santiago Principles will enhance understanding of the way in which SWFs (sovereign wealth funds) operate.
- Given the voluntary commitment and drafting effort by SWFs, participants are expected to publicly endorse the principles.
- Compliance and monitoring:
- Some of the principles call for certain information to be disclosed, making nonimplementation or noncompliance apparent in a short period of time.
- Some SWFs have decided to use independent third parties to confirm compliance with the Santiago Principles.
- The IWG is considering the establishment of a permanent representative body for SWFs; part of that body's role would include discussion of implementation of the principles.
- Stability and investment behavior of SWFs:
- SWFs typically take a long-term view on their investments and are seen by some commentators as shock-absorbers in volatile markets.
- One of the main principles of SWFs is to invest on an economic and financial risk-and-return basis.
- By law these funds will not be able to get involved in noncommercial activity.
- The global crisis that was occurring at the time presents "excellent investment opportunities" and, given the long-term nature of these funds, some have taken advantage of these opportunities.
- Because of their long-term approach, SWFs could find investment options that would add to the stability of markets.
- "By their very nature, SWFs have a big stake in stable global financial markets."
Institutional development and host-country relations
- Creation of a standing group / permanent international body:
- The IWG started examining the creation of a permanent international body to represent sovereign wealth funds.
- The proposed standing group's purpose is to be defined by a formation committee; when terms of reference are set, the body would function more as a forum for interaction than merely an editor of the principles.
- The new permanent body for SWFs would be a focal point of contact between wealth funds and recipient countries.
- Coordination with other organizations:
- The IWG is aware of OECD work in this direction and has synchronized activities with the OECD; the IWG and OECD are described as "two sides of the same coin" on this issue.
- The Santiago Principles are seen as building trust further between host countries and SWFs, with an expectation of a positive reaction from host countries.
Operational implications and next steps
- Monitoring and adjustment:
- The IWG will monitor the appropriateness of the principles going forward and make adjustments where necessary.
- The formation committee will consider establishment details and terms of reference for a standing group to review the principles and consider other issues.
- Practical measures taken by SWFs:
- Use of independent third parties by some SWFs to confirm compliance with the Santiago Principles.
IMF Survey online interview with IWG co-Chair Hamad Al Suwaidi, October 16, 2008.