Santiago Principles Self-Assessment

Intergenerational Trust Fund for the People of the Republic of Nauru

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  • Pillar 1: Legal
  • Pillar 2: Institutional
  • Pillar 3: Investment
Principle 1

1. The legal framework for the SWF should be sound and support its effective operation and the achievement of its stated objective(s).

1.1. The legal framework for the SWF should ensure legal soundness of the SWF and its transactions.

1.2. The key features of the SWF’s legal basis and structure, as well as the legal relationship between the SWF and other state bodies, should be publicly disclosed.

As per its legal framework, The Intergenerational Trust Fund for the People of the Republic of Nauru (NTF) is registered as an International Trust under:

International Organisations (Privileges and Immunities) Act 1963

International Organisations (Privileges and Immunities — Nauru Trust Fund) Regulation 2015

The International Organisations (Privileges and Immunities—Nauru Trust Fund) Regulation 2015 (“the Regulation”) declares the Intergenerational Trust Fund for the People of the Republic of Nauru (“the Fund”), established in accordance with the Memorandum of Understanding between the Government of the Republic of Nauru and the Government of Australia (“the MoU”), to be an international organisation to which the Act applies.

Section 6(1)(a)(i) of the Act provides that the regulations may confer upon an international organisation to which the Act applies “juridical personality and such legal capacities as are necessary for the exercise of the powers and the performance of the functions of the organisation”.

For this purpose, section 6 of the Regulation confers the legal personality and capacities necessary for the Fund to exercise its powers and perform its functions under the MoU. Specifically, it confers body corporate status on the Fund under Australian law and enables it to enter into contracts, acquire and dispose of property, institute legal proceedings in its own name, and take any other action to protect the assets of the Fund.

The NTF registration documents provide a sound legal structure and basis for other state bodies as set out in the document including the Explanatory notes to the Regulations and how it is linked to the MOU’s (Paragraph 8) and both documents are publicly disclosed in (Legal):

Principle 6

6. The governance framework for the SWF should be sound and establish a clear and effective division of roles and responsibilities in order to facilitate accountability and operational independence in the management of the SWF to pursue its objectives.

The governance framework is set out in the MOU with clear guidelines of the division of roles. Strict accountability and operational guides are in place via the MOU and strengthen by specific approval and other measures (Delegation Manual – formally approved in the AGM 2017) developed and monitored by the Executive Administrator under the direction of the Management Committee.

Paragraph 12 of the MOU sets out the various specific roles in addition to the committee roles. Descriptions of the roles are also included in the definitions section of the MOU. 

The current roles include in addition to the Committee Members – Executive Administrator (Includes accounting services and quarterly/annual accounts preparation), Investment Manager, Auditor and a Review Consultant who has in-depth experience in the administration of other Pacific Island funds.

Principle 18

18. The SWF’s investment policy should be clear and consistent with its defined objectives, risk tolerance, and investment strategy, as set by the owner or the governing body(ies), and be based on sound portfolio management principles.

18.1. The investment policy should guide the SWF’s financial risk exposures and the possible use of leverage.

18.2. The investment policy should address the extent to which internal and/or external investment managers are used, the range of their activities and authority, and the process by which they are selected and their performance monitored.

18.3. A description of the investment policy of the SWF should be publicly disclosed.

The NTF Investment policy and strategy (including the risk components) are key to the success of the fund. The Committee, in conjunction with advisers and the international investment manager (Mercer International), work closely with the NTF Committee to establish, continually review, and manage a sound and robust investment portfolio within the Investment policy guidelines.  A formal (minutes) investment strategy occurs every 12 months or as may be required.

The NTF approved Investment Policy covers risk (in Section 4) and options (in Section 6) for the NTF investment portfolio.

These Sections include: The Trust Fund Committee will seek to achieve the maximum long-term investment return for its defined tolerance for risk. It is acknowledged that the investments made by the Original Partners and other contributors are subject to risk and that in certain periods this can result in (realised or unrealised) losses. These investment risks include but may not be limited to:

Market risk, currency risk, interest rate risk, credit (default) risk and Illiquidity risk. The Committee expects the Investment Fund to be invested consistent with best practice for sovereign wealth funds. The portfolio will not be leveraged.

Investment risk will be limited by appropriate diversification between and within investment asset classes.

The Committee understands that the Investment Fund has a long-term investment horizon and a high exposure to growth assets is appropriate to generate strong real investment returns. The investment strategy for the Investment Fund will be undertaken in stages outlined in Section 4 of the Investment Policy document and will take into consideration relevant memoranda of understanding, funds under management and market conditions.

The investment policy (in conjunction with the MOU and administrative approval limits) addresses the activities of managers both internal and external to the fund (primarily within Section 3 of the document):

In making decisions on investment strategy, the Committee has regard to the overall circumstances of the Republic of Nauru and will comply with all applicable legislative requirements.

With respect to asset management, the oversight responsibility of the Trust Fund rests with the Committee composed of individuals whose responsibilities encompass the following:

Establishing overall objectives and the setting of investment policy.

Monitoring the management of the Investment Fund’s assets.

Reviewing the asset allocation mix on a regular basis to ascertain not only that the existing portfolio conforms to the desired targets and ranges, but also that the targets and ranges remain suitable and represent the prudent asset allocation mix for the 

Investment Fund.

Monitoring performance to determine whether or not the rate of return objectives is being met and that Policy and guidelines are being followed.

Taking appropriate action if objectives are not met or if the policy and guidelines are not followed.

The policy is on: