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| Strategic Investment Funds
manager the responsibility for investing the assets of the fund (see table 5.1 on the broad distinction between investment policy and strategy for a SIF). The investment policy serves multiple governance purposes. It commits and tethers the sponsor to a long-term vision for the fund, tempering the risk that subsequent and conflicting political priorities may undermine that vision.1 The policy is an important aspect of concretizing the accountability framework of the SIF, requiring the fund to behave with predictability within stated boundaries (Alsweilem and Rietveld 2017) and providing a yardstick against which governing bodies can judge the intended activities of the manager.2 It also provides the framework within which the financial performance and economic impact of the fund will be monitored and assessed. The investment policy is usually outlined in the SIF’s legislation, in ancillary regulation, or in policy documents of the sponsor, and is typically disclosed on the SIF’s website. Because the investment policy is essential to the accountability framework of any public sponsor–anchored fund, including SIFs, best practice demands public disclosure of the policy3 (see box 5.1 on the Santiago Principles, outlining the key guidance provided to SWFs on investment policy and strategy).
BOX 5.1
Investment policy–related guidance within the Santiago Principles The Santiago Principles include the following generally accepted principles and practices (GAPPs) related to sovereign wealth funds (SWFs): GAPP 18. Principle The SWF’s investment policy should be clear and consistent with its defined objectives, risk tolerance, and investment strategy, as set by the owner or the governing body(ies), and be based on sound portfolio management principles. GAPP 18.1. Subprinciple. The investment policy should guide the SWF’s financial risk exposures and the possible use of leverage. GAPP 18.2. Subprinciple. The investment policy should address the extent to which internal and/or external investment managers are used, the range of their activities and authority, and the process by which they are selected and their performance monitored. GAPP 18.3. Subprinciple. A description of the investment policy of the SWF should be publicly disclosed. GAPP 19. Principle The SWF’s investment decisions should aim to maximize risk-adjusted financial returns in a manner consistent with its investment policy, and based on economic and financial grounds. Source: IWG 2008.
GAPP 19.1. Subprinciple. If investment decisions are subject to other than economic and financial considerations, these should be clearly set out in the investment policy and be publicly disclosed. GAPP 19.2. Subprinciple. The management of an SWF’s assets should be consistent with what is generally accepted as sound asset management principles. GAPP 21. Principle SWFs view shareholder ownership rights as a fundamental element of their equity investments’ value. If an SWF chooses to exercise its ownership rights, it should do so in a manner that is consistent with its investment policy and protects the financial value of its investments. The SWF should publicly disclose its general approach to voting securities of listed entities, including the key factors guiding its exercise of ownership rights. GAPP 23.0. Principle The assets and investment performance (absolute and relative to benchmarks, if any) of the SWF should be measured and reported to the owner according to clea rly def ined principles or standards.
