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Many top sovereign funds fail on governance, transparency - report
October 28, 2014 / 1:46 PM / in 3 years

Many top sovereign funds fail on governance, transparency - report

LONDON, Oct 28 (Reuters) - A majority of the world’s largest sovereign wealth funds lack transparency and adequate governance, with those in the Gulf region scoring particularly low, according to a report published by political risk group GeoEconomica.

Geneva-based GeoEconomica, an independent political-risk research firm, assessed 31 sovereign wealth funds with a total of $4 trillion worth of assets for their compliance with the Santiago Principles, a voluntary code of practice on governance and transparency.

“Numerous funds, most notably from the Gulf region, still need to substantially advance their financial disclosure policies and become more transparent about governance arrangements,” GeoEconomica said in its Santiago Compliance Index, which it has published annually for the past three years.

Nine sovereign funds were considered fully compliant and another nine broadly compliant. But eight fulfilled only part of their commitments and lacked robust financial information like audited statements and balance sheets or performance benchmarks, the study found.

China, Kuwait and Abu Dhabi’s sovereign funds and Singapore’s GIC Private Ltd make up four of the five largest funds in the world and have been ranked as partially compliant. The world’s largest - Norway’s Government Pension Fund Global with $841 billion - is fully compliant, GeoEconomica said.

The Qatar Investment Authority - number sixth in the world - was singled out as the only non-compliant sovereign wealth fund and deficient in most principles. The fund declined to comment on the findings.

QIA has $304 billion in assets under management and through its Qatar Holding subsidiary holds stakes in Chinese department store operator Lifestyle International Holdings, Tiffany & Co and owns London’s Harrods Group.

Another four funds could not be rated because they were undergoing major changes and lacked policy direction.

GeoEconomica Managing Director Sven Behrendt said the lack of transparency and governance created substantial uncertainty for those at the receiving end as well as fellow investors.

“We are talking about huge sums of money here, and the problem is we do not know the logic with which they operate,” Behrendt told Reuters. “If they don’t comply, they just don’t build the confidence that they are investing across the global financial system for economic and financial reasons alone, rather than for political ones.”

The Santiago Principles were drafted in 2008 amid concern about the rising clout of the funds in financial markets and fears that some could make investments for political rather than purely commercial purposes.

Sovereign wealth funds are state-backed entities with funds often originating from natural resource revenues after a commodities and energy boom, as in Norway. Alternatively, sovereign wealth funds can reflect an accumulation of manufacturing export revenues, as is the case with China. (Reporting By Karin Strohecker; Editing by Larry King)

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