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Wide variance in sovereign wealth funds’ compliance with disclosure

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On the first anniversary of adoption of the Santiago Principles, a report has found that some sovereign wealth funds have made progress in becoming more transparent, but there is a wide dispersion in the level of opacity among the funds.

The study, commissioned by the IRRC Institute and conducted by RiskMetrics Group, found that about half of the ten largest SWFs have achieved a relatively high level of disclosure, while other funds have yet to adopt meaningful initiatives to improve compliance with their self-imposed disclosure code of conduct.

The report also indicates that although the aggregate size of the ten largest SWFs is approximately USD2.2trn, the actual impact of the investments on international equity markets is significantly smaller – at about USD1trn.

The report was released to mark the one-year anniversary of adoption of the Santiago Principles by the SWFs. The funds adopted this voluntary code of conduct to help alleviate suspicion and criticism surrounding their activities, particularly cross-border investments into non-domestic companies. The report analyses the engagement and proxy voting practices of the ten largest SWFs and provides a general analysis of transparency levels and case studies.

“SWFs are not inherently ‘good’ or ‘bad.’ But, their massive size draws attention and enables the funds to move markets and affect economies,” says Jon Lukomnik, program director for the IRRC Institute. “Adoption of the Santiago Principles last October signaled a recognition by the funds that there was a need to demystify and reassure the global capital markets through increased disclosure and transparency. At this milestone, the report provides encouraging indications that some funds take disclosure and the principles seriously, but much work remains for other funds. Perhaps this report will spur action for funds that have failed to meet their self-imposed code of conduct.”

Matthew Kiernan, head of strategic planning for global sustainability solutions at RiskMetrics Group said, “Transparency and information disclosure are cornerstones of efficient capital markets. Information disclosure at several investor classes – SWFs, private equity, hedge funds, the new investor class called bailout funds – is frequently cited as insufficient by information users such as companies, co-investors and regulators. The SWFs are a rare example of proactive development of a voluntary code to improve disclosure. This new, innovative and comprehensive SWF research represents a positive step toward improving disclosure in the investment community.”

The SWFs analysed in the report are: Abu Dhabi Investment Authority; Australian Government Future Fund; China Investment Corporation; Government Pension Fund Global; Government of Singapore Investment Corporation; Kuwait Investment Authority; Libyan Investment Authority; Russian Reserve Fund and National Wealth Fund; Qatar Investment Authority; and Temasek Holdings.

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