3.1 Santiago Principles: Key legal principles for SWFs

co-investors, and the availability of alternative regulatory regimes, which may be appealing in some cases (such as when the SIF seeks international co-investors at the fund level).

Because SIFs are a subset of the SWF universe and, depending on their setup and mandate, display the characteristics of state-owned enterprises (SOEs) and purely commercial private capital funds, elements of good legal frameworks and structures distilled from each of these areas can be appropriate to SIFs. In addition, legal principles applicable to SWFs are by and large applicable to SIFs (see box 3.1 on foundational legal principles articulated in the Santiago Principles). Like SOEs, public capital SIFs come in a variety of legal forms and “typically reside at the intersection of public and private law, with significant variation between and within countries” (World Bank 2014, 28). Public capital SIFs may also be set up to operate under laws applicable to SOEs in the jurisdiction and therefore can be subject to the best practices of these enterprises. Conversely, mixed capital SIFs may be identically modeled to private capital funds, set up through commercial law, observing industry norms and practices. Therefore, principles for sound legal frameworks and good governance applicable to private capital funds may also be applicable to such SIFs.

This chapter discusses a menu of options and good practices to consider when constructing the legal framework for a SIF, allowing for the heterogeneity of environments within which SIFs are formed. From the perspective of policy makers setting up either public capital SIFs or mixed capital SIFs, it examines

• The three foundational, and overlapping, elements derived from public law that construct the legal framework for a SIF: the legislation under which a

SIF is brought into existence, the legal structure adopted by the SIF, and the domicile of the SIF;

BOX 3.1

Santiago Principles: Key legal principles for SWFs

The Santiago Principles include the following generally accepted principles and practices (gAPPs) related to sovereign wealth funds (SWFs):

GAPP 1. Principle

The legal framework for the SWF should be sound and support its effective operation and the achievement of its stated objective(s).

GAPP 1.1. Subprinciple. The legal framework for the SWF should ensure legal soundness of the SWF and its transactions.a

GAPP 1.2. Subprinciple. The key features of the SWF’s legal basis and structure, as well as the legal relationship between the SWF and other state bodies, should be publicly disclosed.

GAPP 15. Principle

SWF operations and activities in host countries should be conducted in compliance with all applicable regulatory and disclosure requirements of the countries in which they operate.

Source: IWG 2008. a. See also GAPP 1.1 Explanation and commentary (IWG 2008, 12): “First, the establishment of the SWF should be clearly authorized under domestic law. Second, the legal structure should include a clear mandate for the manager to invest the SWF’s assets and conduct all related transactions. Third, irrespective of the particular legal structure of an SWF, the beneficial and legal owners of the SWF’s assets should be legally clear. Such clarity contributes to accountability in the home country and is often required under the recipient countries’ regulations.”