This article is an edited extract from our March 2026 member newsletter, IFSWF Direct, published here for a wider audience. To receive future editions directly, subscribe here.
State Capital, Strategic Mandates, and the Santiago Principles: Lessons from Korea's New Investment Vehicle.
A development in South Korea has real implications for how the Santiago Principles are understood. South Korea's National Assembly recently passed the Special Act on Strategic Investment between the Republic of Korea and the United States, which provides the legal basis for Seoul's pledge to undertake $350 billion in strategic investment projects in the United States. The act establishes a new Korea–U.S. Strategic Investment Corporation as the manager of a dedicated fund, with statutory capital of 2 trillion won, fully funded by the Korean government.
What makes this particularly noteworthy for the sovereign wealth fund community is the reasoning behind the decision to create a new entity rather than expand the mandate of Korea Investment Corporation (KIC), the country's existing sovereign wealth fund and an IFSWF member. According to Korea's Finance Ministry, placing the new investment programme under KIC would require compliance with the Santiago Principles, which officials suggested may not align with the nature of large-scale strategic investment.
It is worth examining this more closely. The Santiago Principles are a principle-based framework, not a rules-based one, and they were designed precisely to accommodate the diversity of sovereign wealth fund mandates. IFSWF's membership includes funds with explicitly strategic and developmental objectives. Turkiye Wealth Fund restructures and develops state assets. The Investment Corporation of Dubai supports the emirate's economic diversification. Numerous African members pursue national development goals alongside financial returns. Several European IFSWF members function as development finance institutions or strategic investment vehicles rather than pure portfolio investors. None of these funds has found the Santiago Principles incompatible with their mandates, because the Principles do not prescribe what a fund should invest in. They address how a fund should be governed: with transparency, accountability, proper risk management, and sound institutional structures.
The Korean case is instructive because the domestic debate around the new entity reveals exactly the governance risks that the Santiago Principles are designed to mitigate. Lawmakers have disagreed over whether the National Assembly should have prior approval over project selection. The new fund may be excluded from regular parliamentary budget review. Concerns have been raised about the potential use of Foreign Exchange Stabilisation Fund assets outside the normal scope of fiscal oversight. These are precisely the governance challenges that arise when large volumes of state capital are deployed for strategic purposes without a robust accountability framework.
This matters beyond Korea. The lesson for the sovereign wealth fund community is not that the Santiago Principles need to be redesigned for a more geopolitical world — rather, they already provide a flexible, proven governance architecture for funds with a wide range of mandates, including strategic ones. The real question is whether governments recognise this, or whether convenience and speed lead them to bypass governance safeguards that ultimately serve their own interests.
On Our Radar
Norges Bank Investment Management disclosed in its latest annual responsible investment report that it is now using AI to screen investments for governance and sustainability risks — specifically Anthropic's Claude model — to expand the scope of information analysed across its portfolio of over 7,200 companies. CEO Nicolai Tangen noted the technology has been particularly valuable for researching smaller companies in emerging markets, where relevant news may exist only in local languages. Well worth a look for sovereign wealth funds exploring AI in their investment processes. Read the report →
A Morgan Lewis analysis published in February examines the legal and regulatory hurdles sovereign wealth funds face when investing in data centres, one of the fastest-growing infrastructure asset classes globally. The piece covers CFIUS scrutiny in the United States, data-sovereignty frameworks in Europe and Asia, and how different jurisdictions assess foreign state ownership of critical digital infrastructure. The legal distinctions between controlling and non-controlling investments, board representation rights, and access to non-public technical information are well worth reading for funds active — or considering — this space. Read the analysis →
We recently published our latest collaborative report with State Street Associates, Investor Resilience Through Market Shifts & Uncertainty. Drawing on State Street's proprietary indicators — reflecting activity across more than $53.8 trillion in institutional assets — and qualitative insights from IFSWF members, the report examines how long-term investors navigated the financial and geopolitical turbulence of 2025. Among the key findings: equity allocations climbed to their highest point in a decade; many sovereign wealth funds began selectively rotating away from the US toward Japan, Europe and emerging markets; and infrastructure — particularly related to AI adoption, energy transition and supply-chain resilience — is emerging as a key deployment area in 2026. Read the report →
What We're Reading
How do investment committees at large asset owners consider geopolitical risk in real time? A new paper from Aka & Associates, co-authored by Jahangir Aka and Paul O'Brien, provides a practical framework organised around three horizons: the first week (assessing if the portfolio behaves as expected), the first month (examining how uncertainty affects economic activity), and the first quarter (monitoring changes in capital flows and investor confidence). The paper draws on direct experience advising sovereign wealth funds and pension funds, and features a thoughtful section on the dual role of Gulf-based institutions as both global portfolio investors and domestic economic participants. Read the paper →
IFSWF Direct is our members-only newsletter, published monthly. This extract has been lightly edited for a public audience and was published after the original distribution date. Want the full edition in your inbox? Subscribe here.