Push for open SWFs risks investment shift

According to the Reuters, “Leading sovereign funds formed the International Working Group of Sovereign Wealth Funds in 2008, announcing a set of 24 principles and best practices, known as the Santiago Principles, last October. The group — whose members include the United Arab Emirates, Kuwait, Singapore, China, Korea, Russia and Norway — meets once a year to exchange views on issues of common interest and the next gathering is due in October in Baku, Azerbaijan. Gary Smith, head of central bank, supranational and SWF business at BNP Paribas Investment Partners, warns that an excessive push for transparency, coupled with recent poor performance, could lower the risk appetite of SWFs and encourage them to favor safer instruments such as bonds.

‘Following the whole push toward transparency, funds opened themselves up for a monitoring process which did not exist,’ Smith said.

‘We have transparency problems for them. The consequences are that these guys are being marked to market on a daily basis by domestic constituents. It’s uncomfortable, particularly when the assets under management shrink.’

Sponsoring governments therefore need to spell out the mandate of their SWFs with a clearer investment horizon — thereby allowing them to ride out short-term portfolio fluctuations and protecting them from domestic criticism.

‘Obviously we believe transparency is a good thing. The problem of transparency is — daily performance, daily this, daily that — that we create an obsession which often detracts from what you are trying to achieve from a particular portfolio,’ said John Green, global head of business development at Investec.

‘There should be governance structures, transparency, disclosure but you don’t want to drive the investment strategies through public opinion,” said Green, whose clients include African official institutions.'”

read more: Reuters



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