Generally Accepted Principles and Practices for Sovereign Wealth Funds ("Santiago Principles")
The standard was issued International Working Group of Sovereign Wealth Funds (IWG) and facilitated by the International Monetary Fund (IMF). Elements of the GAPP have been drawn from a review of existing SWF practices used in a number of countries and a distillation of principles and practices applicable to SWF activities that are already in use in other international fora. Making the GAPP known will help to increase understanding of SWFs to home and recipient countries and the international financial markets. The GAPP also seeks to ensure that through the pursuit of these principles and practices, SWFs continue to bring economic and financial benefits to home countries, recipient countries, and the international financial system. The GAPP aims at supporting the institutional framework, governance, and investment ope rations of SWFs that are guided by their policy purpose and objectives, and consistent with a sound macroeconomic policy framework. Publication of the GAPP should help improve understanding of SWFs as economically and financially oriented entities in both the home and recipient countries. This understanding aims to contribute to the stability of the global financial system, reduce protectionist pressures, and help maintain an open and stable investment climate. The GAPP would also enable SWFs, especially newly established ones, to develop, review, or strengthen their organization, policies, and investment practices. To ensure success of the GAPP, a constructive and collaborative response from the recipient countries will be essential. The IWG is of the view that the GAPP, together with the OECD's guidance for recipient countries,10 will help achieve the shared goal of maintaining a stable and open investment environment. Increased transparency- both by the SWFs on their structure and operations, and by recipient countries on their investment screening processes and equal treatment of investors-is one of the key factors in achieving this shared goal. The GAPP is a voluntary set of principles and practices that the members of the IWG support and either have implemented or aspire to implement. The GAPP denotes general practices and principles, which are potentially achievable by countries at all levels of economic development. The GAPP is subject to provisions of intergovernmental agreements, and legal and regulatory requirements. Thus, the implementation of each principle of the GAPP is subject toapplicable home country laws. The principles and practices laid out in the GAPP, along with their explanatory notes, can be expected to guide existing and future SWFs in various aspects of their activities- most importantly investing professionally in accordance with their investment policy objectives-and to help inform any associated legal and institutional reform. As investment institutions, SWFs operate on a good faith basis, and invest on the basis of economic and financial risk and return-related considerations. In doing so, they comply with applicable regulatory and disclosure requirements in their home countries and in the countries in which they invest. The GAPP covers practices and principles in three key areas. These include (i) legal framework, objectives, and coordination with macroeconomic policies; (ii) institutional framework and governance structure; and (iii) investment and risk management framework. Sound practices and principles in the first area underpin a robust institutional framework and governance structure of the SWF, and facilitate formulation of appropriate investment strategies consistent with the SWF's stated policy objectives. A sound governance structure that separates the functions of the owner, governing body(ies), and management facilitates operational independence in the management of the SWF to pursue investment decisions and investment operations free of political influence. A clear investment policy shows an SWF's commitment to a disciplined investment plan and practices. Also, a reliable risk management framework promotes the soundness of its investment operations and accountability. This document consists of three parts-the GAPP (Part I); a discussion of the GAP P, where each GAPP principle and subprinciple has an accompanying explanatory note that provides the underlying rationale and objective for the principle in question, together with examples on how the principle has been implemented in some countries (Part II); and appendix and reference material, including a definition of SWFs, background information of SWFs represented in the IWG, and references to professional literature and other international standards and codes, parts of which are applicable to SWFs (Part III).
International Endorsement : IMF, IWG
International Application : Elements of the GAPP have been drawn from a review of existing SWF practices used in a number of countries and a distillation of principles and practices applicable to SWF activities that are already in use in other international fora.