In 2008, the newly-formed International Working Group for Sovereign Wealth Funds met in Chile to draft a comprehensive set of principles to guide the management of sovereign wealth funds globally. In this article, the International Monetary Fund, whose members make up the IWGSWF, lists the best principles and policies for managing large natural resource funds around the world. According to the Generally Agreed Principles and Practices for International Sovereign Wealth Funds, the following 24 rules currently govern SWF’s:
1) There should be complete legality in transactions and legal principles should be made transparent in SWFs;
2) State policy purposes for the SWFs should be fully disclosed;
3) Macroeconomic policies within SWFs should be managed by domestic authorities and experts;
4) Funding, withdrawal and spending of funds should be publicly disclosed;
5) Statistical data should be reported within an appropriate timeframe;
6) The governance framework should be clear and made accountable to management;
7) The owner(s) of the SWF should set clear objectives and appoint members based on set rules, and oversight should be a task of the owner(s);
8) The governing body should act in the best interest of the SWF and be authoritative and competent enough to carry out its set goals;
9) Management should operate in an independent and clear fashion;
10) Accountability should be clearly defined in legislative documents;
11) Annual reports and financial statements should be drafted in a timely fashion and in accordance with international accounting standards;
12) There should be an independent annual audit of the SWF’s financial statements based on internationally recognized auditing practices;
13) The management and staff should be in possession of a clear set of ethical standards defined by the governing body;
14) Third-party business should be clearly defined and navigated based on strict rules and principles;
15) SWF operations and mandates should be aligned with country laws and requirements;
16) The relationship and operative procedures among the owner(s) and the management of the SWF should be clearly defined;
17) Relevant financial information should be disclosed that helps stabilize the international financial markets and enhances trust in investment;
18) Investment policy should be clearly defined and reported both internally and externally and should be based on best practices in portfolio investment management;
19) SWFs should aim to maximize risk-adjusted financial returns, and if investments are based on objectives other than financial or economic returns this should be clearly stipulated;
20) SWFs should not be taking advantage of privileged information by the government when competing with private companies;
21) If the SWF chooses to share ownership rights with other entities it should do that in a clear manner that protects the financial value of its investments;
22) Management of risk should be a separate function within SWFs that includes timely reporting systems, adequate monitoring, codes of conduct and an independent auditing function;
23) Assets and investment performance should be measured and reported to all owners based on internationally-recognized standards;
24) A process of regular review of the GAPP should be a partial function of the SWFs.
