The International Forum of Sovereign Wealth Funds (Forum) met in Sydney, Australia on May 6–8.
The Forum members exchanged views on the Santiago Principles (Principles), and the emerging investment outlook given the current market conditions and the ongoing regulatory policy reform agenda. Of particular importance was the opportunity to continue dialogue with recipient countries with a view to maintaining free flow of long-term investment capital.
Hosted by Australia’s Future Fund, senior officials from 22 SWFs attended the meeting. Senior level representatives from 6 recipient countries, the Asian Development Bank, European Commission, the International Monetary Fund, the OECD, and the World Bank also participated. The Honorable Lindsay Tanner, MP, Australia’s Minister for Finance and Deregulation addressed the Forum members and commended them for the rapid progress made since the adoption of the Santiago Principles in October 2008. He also outlined the important macroeconomic role played by the Future Fund in Australia, and pointed out the usefulness of SWFs in the management of non renewable resources. SWFs are applying Santiago Principles
The Forum members acknowledged the continuing importance and value of the Principles in strengthening their operations as reliable and responsible sovereign investors. They noted continuing progress in the application of the Principles since their adoption in October 2008. Some members have issued their first annual reports/reviews and increased available information on their websites. Forum members reiterated their commitment to continue discussing the progress with the application of the Principles. They also felt that a lot more work is needed towards improving the public understanding of the Principles. SWFs remain important actors in their home and host countries The Forum felt that the current conditions in the financial markets and the uncertainties relating to sovereign credit risk assessment, especially in the Euro zone, were presenting a less certain investment environment. While not escaping the effects of the 2007-09 global economic and financial crisis, Forum members felt that they had proved their significance during this period.
Many funds provided liquidity to stabilize rising fiscal deficits, as per their mandate, and some funds also supported stimulus packages to support economic activity. Going forward, the assets under management of the Forum members are expected to continue growing at the same time as the global economic recovery takes place. The Forum members will continue to play an important role in keeping open the flow of investment when it could otherwise be falling in many recipient countries and this will be a significant factor in maintaining and contributing to global growth and stability by boosting productivity.
José Viñals, Financial Counselor and Director of the Monetary and Capital Markets Department at the IMF, briefed the Forum members on the recently released IMF’s Global Financial Stability Report. He stressed the importance of policy actions to restore the health of sovereign balance sheets and financial institutions and the regulatory reforms needed to move to a safer and more resilient global financial system. Regulatory environment and investment regimes The Forum is of the view that a consistent and a globally coordinated approach is urgently needed to conclude the regulatory reform of the financial sector. The uncertainty is affecting investment options and combined with the recent heightening of sovereign risk, it is resulting in a highly complex operating environment for Forum members. They cautioned against any steps that would place restrictions or other limitations that would distort investment regimes and affect free flow of capital across borders. In this regard, the Forum welcomes the multilateral efforts by the IMF and the OECD. The Forum will continue to collaborate with them, the recipient countries, and other bodies in this common goal.
The Forum members thanked the representatives from the United States Treasury and the European Commission who briefed them on the latest developments in regulatory reforms, and how their proper implementation will help reduce investment related uncertainty. Charles Dallara, Managing Director, Institute of International Finance addressed the Forum members highlighting the importance of getting the regulatory reform right in a globally coordinated way. Mr. Dallara praised the Forum for promoting transparency, and encouraged recipient countries to maintain open trade and investment policy. He stressed the need for governments of advanced market economies to embark on an aggressive fiscal consolidation path. Andrew Crockett, President, J.P. Morgan Chase International pointed out SWFs would need to be cognizant of the new risks that are likely to emerge as changes occur in the global economy, particularly, the increased significance of sovereign debt as a risk factor in investment portfolios. Framework to strengthen the activities of the Forum The Forum reviewed the progress of the work by its three sub-committees on the application of the Principles, risk and investment management, and investment regimes and recipient country issues, and updated its future work agenda.
The Forum members will undertake a survey on the experiences with application of the Principles and publish relevant parts of it. On the risk and investment management side, work will continue drawing on the lessons from the crisis and improving on existing risk management frameworks. In this context, the Forum members discussed the merits of active investment management and the use of risk factors to better understand the risk profile of their portfolios. On investment regimes, the Forum agreed to increase its engagement with relevant organizations, such as the European Commission, the OECD, the IMF, and recipient countries, to share the Forum’s progress and to be assured that the Forum members are not subjected to actions exceeding those applied to other investors in similar circumstances.
Next Meeting The Forum will next meet in Beijing, China in April 2011. The meeting will be hosted by the China Investment Corporation.
Note to editors
The International Forum of Sovereign Wealth Funds (IFSWF) was established by the International Working Group of Sovereign Wealth Funds (IWG), in Kuwait City in April 2009 (see "Kuwait Declaration", and it held its inaugural meeting in Baku, Azerbaijan in October 2009. IFSWF is a voluntary group of Sovereign Wealth Funds, which meets, exchanges views on issues of common interest, and facilitates an understanding of the Santiago Principles and SWF activities. The staff of the International Monetary Fund (IMF) facilitates the work of the Forum.