Sovereign wealth funds (“SWFs”) burst onto the international financial scene a decade ago. They are government-controlled funds that generally invest in whole or in part outside their home country. SWFs attract political and financial attention because of their substantial size. The funds often are controlled by governments that are not major participants in international finance or in the construction of the associated web of standards and behavioral conventions of international finance. In many cases, funds’ operations are substantially opaque. Such opacity, along with SWFs’ size, give rise to suspicions about the motives behind their investments and their potential to contribute to economic, financial, or political disruption.
SWFs, in form if not in name, have been around for decades. They are a feature of government finance in many countries. Some funds are financed from fiscal surpluses, and some are loosely tied to long-term pension plans. Others operate as stabilization funds.
The strong growth of foreign exchange reserves during the 2000s, from both the commodity price boom and heavy foreign exchange intervention, was a factor leading to the establishment of more SWFs and expansion of those that already existed.
A decade ago, in response to the varied concerns about SWFs, I began to write about SWFs and designed a SWF scoreboard to examine the transparency and accountability of these funds within and outside of their countries. The first full SWF scoreboard, for 2007, was released in April 2008 in A Blueprint for Sovereign Wealth Fund Best Practices; the second, for 2009, in Sovereign Wealth Funds: Threat or Salvation?; the third, for 2012, in Progress on Sovereign Wealth Fund Transparency and Accountability: An Updated SWF Scoreboard; and the fourth, for 2016, in Uneven Progress on Sovereign Wealth Fund Transparency and Accountability.
The motive behind designing the SWF scoreboard was to encourage funds to be more transparent and accountable and thereby to reduce concerns about their activities in the countries in which they invest. The Santiago Principles drew upon my work and were similarly motivated as a defensive initiative by the funds, the countries that sponsor them, and the countries that are recipients of their investment. Representatives of some of the latter groups of countries participated in the process. Although the scoreboard and the Santiago Principles were initially motivated by international concerns, domestic citizens have an even greater interest in the transparency and accountability of the funds that invest their countries’ wealth. It is ultimately their wealth.
The subsequent SWF scoreboards and the comparison of those results with the Santiago Principles were intended to keep some degree of pressure on the SWFs to increase their transparency and accountability. I also wanted to monitor the efforts of the International Forum of Sovereign Wealth Funds (“IFSWF”) to encourage adherence to the Santiago Principles.
