Sovereign wealth funds: transparently inadequate; Many SWFs are failing to comply with their own governance standards

September 29, 2013 5:28 pm

Sovereign wealth funds: transparently inadequate

Many SWFs are failing to comply with their own governance standards

Capital markets are in awe of sovereign wealth funds. Many high-profile investments of recent years – the rescue of western banks, buying trophy assets or scooping up natural resources – have involved an SWF as lead investor or chief moneybags. That is helping these institutions to go more mainstream. But as capital markets have changed to adapt to SWFs, it seems that the funds themselves areslower to adapt to the norms of the capital markets.In particular, the world’s SWFs are failing to comply fully with their own code of conduct. An audit byGeoEconomica, a Geneva political risk consultancy, of the 26 funds that drew up the Santiago principles in 2008 reveals a very mixed picture. The principles commit the funds – which manage a combined $3tn – to basic standards of good governance and financial disclosure. None is yet in full compliance; the average across the spectrum is 70 per cent.

Of course, the scale of compliance varies widely. The most compliant with the principles – which concern issues such as policy mandates; the relationships among owners, supervisors and managers; and disclosure surrounding returns – are the SWFs of Norway, New Zealand, Australia, Chile, Alaska and Timor-Leste (which has a petroleum fund). No surprises there – Norway’s $750bn “oil fund” is aglobal standard for governance and disclosure. Bringing up the rear, with less than 60 per cent compliance, are several Middle Eastern SWFs, Russia, Mexico and a handful of others.

Developing-world SWFs can usually talk the talk when it comes to investing. The audit suggests that fewer can actually walk the walk. If nothing else, it strips away some of the mystique surrounding SWFs. It turns out that their mixed record on accountability can now be added to their mixed record on investment returns. The world’s SWFs are not as reliable a guide to investing as they, or their co-investors, might think.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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