Gulf SWFs Still Lag on Transparency, Report Says

The sovereign wealth funds of the energy-rich Arab Gulf are some of the world’s largest pools of capital, collectively holding more than $1 trillion of assets. But their strategies, returns and approaches to risk aren’t often disclosed, something political risk consultancy GeoEconomica singles them out for in a new report.

Gulf funds lag global peers in compliance with the so-called Santiago Principles, a voluntary set of guidelines funds agreed upon in 2008, the report says.

At that time, worry was growing that these huge funds might use their financial muscle to accomplish political objectives in foreign countries. The funds wanted to convince the international community that they were only seeking financial gain by more clearly spelling out their investment policies, financial information and governance structures.

Among the report’s findings:

• Globally, compliance with the Santiago Principles is still “uneven” some six years after they were announced. While many funds have improved financial and governance disclosure, “numerous funds, most notably from the Gulf region, still need to substantially advance their financial disclosure policies and become more transparent about governance arrangements. Their enhanced commitment to the Principles, in the form of more proactive disclosure policies, is essential to maintaining the legitimacy of the Principles themselves.”

• Nine sovereign funds globally were deemed fully compliant with the principles, including Norway’s Government Pension Fund, the world’s largest sovereign wealth fund.

• A further nine funds were “broadly compliant,” meaning they had only minor shortcomings vis-a-vis the principles. These included Singapore’s Temasek Holdings and Russian reserve funds.

• Eight funds were only partially compliant, including two of the three Gulf funds. The Abu Dhabi Investment Authority got a “C+” grade, while the Kuwait Investment Authority got a “C.” Another Arab fund, the Libya Investment Authority, fell in this category.

• One fund – the Qatar Investment Authority – was given a “non-compliant” rating.

• Arab sovereign funds may have good governance arrangements and sound investment policies, but Geoeconomica said it often couldn’t ascertain their financial approaches and governance. For the time being, it said, “Arab SWFs have demonstrated neither their managements’ operational independence nor their economic and financial orientation, and therefore have not contributed to building confidence in the SWF industry in line with the Principles’ aspirations.”

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(via WSJ Blogs)