Sovereign Wealth Funds: An Analysis of the Santiago Principles

Sovereign wealth funds (SWFs) have evolved into a global financial phenomenon. Their number and the resources available to them have expanded dramatically in recent years. Many of the largest SWFs, which include those from China, the Middle East, and Russia, have gained their wealth from high oil prices or the accumulation of foreign reserves due to loosening monetary policy. According to recent data, investments by sovereign wealth funds during the first quarter of 2008 were worth approximately $58 billion. The weakened global economy has further propelled SWFs to the forefront of a world in financial crisis. Liquid capital injections are needed to alleviate financial stress, and SWFs are seen as a potential source of those funds.

During the previous fall semester, students in the workshop reviewed the Santiago Principles, a set of "best practices" agreed to by a large group of Sovereign Wealth Funds under the auspices of the IMF on such issues as investment objectives, transparency, and corporate governance. With reference to the recent academic/investment literature on the subject, an assessment of the practicality, strengths and weaknesses of the proposals will be made. During the spring, the Capstone workshop group expanded the work to include a review of the likely impacts of the global financial crisis on sovereign wealth funds. In addition, the group prepared case studies on at least five of the largest sovereign wealth funds, assessing their readiness to comply with the Santiago Principles and their relationship to the concerns raised by Congress.  At the end of the project, the group members will be asked to present the study to a group of senior CRS staffers in Washington, D.C.