Over the weekend, the International Working Group of Sovereign Wealth Funds announced a set of proposed governance principles for sovereign wealth funds (SWFs).

The so-called Santiago Principles were presented to the International Monetary Fund’s International Monetary and Financial Committee, and the IWG announced it has established a formation committee to explore the creation of a permanent international Sovereign Wealth Fund body.

The set of 24 voluntary principles represent generally accepted principles reflect the funds’ investment practices and objectives. The principles, which the members of the IWG support, they have either implemented or aspire to implement. The key areas covered in the principles include: legal framework, objectives, and coordination with macroeconomic policies; institutional framework and governance structure; and, investment and risk management framework.

The guiding purpose of these principles is to: have in place a transparent and sound governance structure that provides for adequate operational controls, risk management and accountability; ensure compliance with applicable regulatory and disclosure requirements in the countries in which SWFs invest; ensure SWFs invest on the basis of economic and financial risk and return-related considerations; and, help maintain a stable global financial system and free flow of capital and investment.

The group noted that the work relating to the principles has highlighted the importance for the group to remain together to keep the Santiago Principles under review and examination, including how they are being implemented, and to facilitate discussion with recipient countries, multilateral institutions, the private sector and others. Therefore, the IWG has decided to explore the creation of a standing group for SWFs. A committee composed of 10 IWG members has been established to examine the standing group’s constitution and terms of reference, and is expected to present a proposal by year-end.