Administration October 12, 2009

Sovereign Wealth Funds Make Progress on Disclosure

October 12, 2009 (PLANSPONSOR.com) - A new study finds that about half of the ten largest Sovereign Wealth Funds SWFs have achieved a relatively high level of disclosure, while other funds have yet to adopt meaningful initiatives to improve compliance with their self-imposed disclosure code of conduct.
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The report also indicates that although the aggregate size of the ten largest SWFs is approximately $2.2 trillion, the actual impact of the investments on international equity markets is significantly smaller – at about $1 trillion.

The study, “An Analysis of Proxy Voting and Engagement Policies and Practices of the Sovereign Wealth Funds,” was commissioned by the IRRC Institute and conducted by RiskMetrics Group.

“SWFs are not inherently ‘good’ or ‘bad.’ But, their massive size draws attention and enables the funds to move markets and affect economies,” said Jon Lukomnik, program director for the IRRC Institute, in a news release. “Adoption of the Santiago Principles last October signaled a recognition by the funds that there was a need to demystify and reassure the global capital markets through increased disclosure and transparency. At this milestone, the report provides encouraging indications that some funds take disclosure and the principles seriously, but much work remains for other funds.”

According to the news release, the report’s findings include:

  • The current total size of the SWFs and the percentage invested in international equity is less than the figures generally reported in the media. Consequently, estimates of their potential impact on the international capital markets are exaggerated. The study estimates that the total international equity investments of the ten largest SWFs is less than half of the figures generally reported.
  • Few funds disclose engagement policy or performance data for individual investments in which they take large stakes and engage with the investee companies. Evidence was found supporting active engagement with companies by most of the SWFs.  
  • Few SWFs have shown strategic focus on environmental and social risk management and investments. Given SWFs are mostly long-term investors; focus in this area can help them yield the associated long-term financial benefits.

The news release said 37 data points in six fundamental criteria were collected by analysts fluent in Chinese, Russian, Italian, French and English. Those six core areas were: investment strategy; governance; engagement practices; capabilities; environmental, social and governance practices; and disclosure.

The SWFs analyzed in the report are: Abu Dhabi Investment Authority (ADIA); Australian Government Future Fund (AGFF); China Investment Corporation (CIC); Government Pension Fund Global (GPFG); Government of Singapore Investment Corporation (GIC); Kuwait Investment Authority (KIA); Libyan Investment Authority (LIA); Russian Reserve Fund and National Wealth Fund; Qatar Investment Authority (QIA); and Temasek Holdings (Temasek).

The full report is available here .

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