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transaction structures. Core elements of the investment strategy include target sectors and geographies, admissible capital instruments, ability to take majority or minority stakes, size of individual investments, and co-investment strategy. • Distinguishing features of the SIF investment strategy include (1) the flexibility to invest through a range of capital instruments, subject to the investment’s ability to attract commercial returns and exhibit additionality; and (2) a focus on co-investment and minority investment strategies to facilitate capital mobilization and avoid crowding out private capital. • The risk management framework for a SIF identifies, measures, manages, and regularly tracks all relevant risks that could potentially inhibit the fund’s success. A robust risk management system is an expected feature for alternative investment funds in the private sector and for SWFs based on accepted governance standards. • The SIF’s risk management framework clarifies risk appetite, identifies and measures risks, and establishes a governance structure for risk management. The SIF typically captures the specific risks to which it is susceptible through a customized methodology that can systematically monitor, mitigate, and report on investment- and portfolio-level risk. Risk mitigation is mainstreamed within the SIF’s management, often characterized through a three lines of defense approach whereby each tier has the responsibility to interrogate investment or operational decisions according to their risk impact on the SIF.
NOTES 1. Alsweilem and Rietveldt (2017) compare this strategy to Ulysses contracts, named after the story in the Odyssey in which Ulysses has his hands tied to the mast of the ship so that he cannot be lured by the sirens. 2. As the NIF Investment Policy Statement of April 2019 well states, “It establishes a structure of guidelines and policies within which the executive management can exercise their delegated authority and against which recommendations to the Direct Investments Committee (DIC) and Board can be judged.” 3. See the Santiago Principles generally accepted principles and practices (GAPP), GAPP 18.3: “A description of the investment policy of the SWF should be publicly disclosed” (IWG 2008). 4. The policy must be reconfirmed annually by the board. 5. See the FONSIS case study (appendix A) and Article 13 of Law 2012-34: Authorizing the Creation of a Sovereign Fund of Strategic Investments (FONSIS), passed by the Senegal National Assembly on December 31, 2012. 6. Commercially sensitive information has been redacted for the version published online. 7. See Invest Europe (2018), which discusses parallel insights with respect to PCFs. 8. See Invest Europe (2018), which discusses parallel insights with respect to PCFs. 9. ISIF has published two investment strategies since its establishment. Establishment acts and other documents mentioned in this paragraph can be found in the reference lists of the respective case studies. 10. As noted in the thematic review on Meridiam (see appendix B), the presence of highly qualified professionals (ideally with an international background) on a SIF’s investment team facilitates co-investments with international PCFs. 11. In the private equity sector, there is increasing evidence that fund investors value a manager’s ability to demonstrate deep expertise in a focused field, in the belief that s ector-specific knowledge will lead to better-informed investment decisions (Preqin 2015).
