Notes

• Two main types of legal approaches are used to establish SIFs: (1) SIF-specific law or decree, with varying degrees of reliance on commercial or SOE law; or (2) purely commercial (domestic or foreign) law. In general, public capital

SIFs tend to rely on SIF-specific legislation, whereas mixed capital SIFs tend to use commercial law. The choice of legal approach provides signaling effects to potential private co-investors on the operational independence and commercial orientation of the SIF. • Public capital SIFs that invest domestically, and do not seek outside investment, typically adopt bespoke legal structures under special legislation or use local commercial structures. mixed capital SIFs tend to adopt globally recognizable private sector management and capital pooling structures. • Choosing a well-recognized fund jurisdiction as a domicile allows SIFs to operate in a bigger arena than as a local actor. Offshore domicile is primarily relevant for mixed capital SIFs anchored by nongovernment entities, for which a broad range of factors may influence the choice of domicile. SIFs anchored by government sponsors are usually driven by political reasons to establish in their home country. • Explicit or implicit reliance on SOE laws or structures may subject a government-sponsored SIF to a variety of public sector laws and regulations that can conflict with the mandate of the SIF and hinder its competitiveness. Ideally, governments must explicitly differentiate SIFs from SOEs (through special legislation or otherwise) to negate the risk of subjecting SIFs to laws and regulations that impede fulfilling their mandate.

NOTES

1. In the Santiago Principles, the generally accepted principles and practices (gAPPs) for sovereign wealth funds (SWFs), gAPP 1.2 states, “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” (IWg 2008, 7). In addition, gAPP 6 states, “The governance framework for the SWF should be sound and establish a clear and effective division of roles and responsibilities in order to facilitate accountability and operational independence in the management of the SWF to pursue its objectives” (IWg 2008, 7). 2. See Santiago Principles gAPP 1, Explanation and Commentary (IWg 2008, 11). 3. With respect to the legal domicile of the SIF, a strong legal framework will also provide simple and manageable procedures for entering into investments and projects.

The legal framework will provide for the protection of property rights and contractual rights, as well as effective enforcement of these rights. When establishing investment and enforcing investors’ rights are “perceived as cumbersome and lack predictability” (OECD 2020, chapter 3), and if disputes “cannot be resolved in a timely and cost-effective manner” (OECD 2021, chapter 5), investors will be less willing to co-invest with the SIF. 4. Domestic political risks (for example, legitimacy), domestic governance risks (for example, corruption), international governance risks (for example, negative externalities created by SWF activity), and international political risks (for example, mercantilism, politicization). 5. Note that in some cases commercial laws are indeed customizable. many commercial laws have default provisions from which to opt out, thus providing a highly customizable legal and governance framework for the entity. For example, some of Luxembourg’s entity structures, like the SAS (société par actions simplifiées, or simplified shareholder company), are highly customizable. 6. For the full text of the NSIA Act 2011, see https://nsia.com.ng/~nsia/sites/default/files /downloads/NSIA%20Act.pdf. 7. For the full text of the NTmA Act 2014, see http://www.irishstatutebook.ie/eli/2014 /act/23/enacted/en/pdf.

8. See the fund’s Santiago Principles Self-Assessment (https://www.ifswf.org/assessment /angola). 9. In some cases, they would need approval of the legislature. 10. State ownership is allocated between the Nigerian federal government, state governments, local governments, and the federal capital territory. 11. For example, a company established in accordance with standard company law provisions (setting out standards of independence for directors) may reduce regulator concerns over potential influence over the company by sponsor government officials, even when the government is a primary investor in the company. 12. Note that, as a sole shareholder, it would also have complete discretion in a commercial law framework although commercial law is often less customizable. 13. Per the Santiago Principles explanatory comments, SWFs are constituted in the same way:

There are several ways in which the legal basis and structure of SWFs are disclosed. For

SWFs that do not have a legal identity, their legal basis and structure is typically described in the provisions of publicly available legislation. The legal structure of SWFs that have a legal identity with capacity to act under public law is disclosed through the generally available constitutive laws of the SWF. Lastly, SWFs that are constituted as state-owned companies are normally governed by the country’s company law (as well as other laws regulating private and public companies). In addition, some SWFs disclose key features of their corporate structure on their websites (for example, Australia, Canada (Alberta), the

Republic of Korea, Kuwait, New Zealand, and Singapore) (IWg 2008, 12). 14. OHADA (Organisation pour l’harmonisation en Afrique du droit des affaires, or

Organization for the Harmonization of Corporate Law in Africa) is a system of corporate law and implementing institutions adopted by 17 West and Central African nations in 1993. 15. This is typically the case for SOEs that have a specific policy goal in addition to profit maximization (see World Bank 2014). 16. For the full text of the ghana Infrastructure Investment Fund Act, 2014, Act 877, see http:// www.odekro.org/Images/uploads/ghana%20Infrastructure%20Investment%20

Fund%20Act,%202014.pdf. 17. The NSIA Act 2011 provides a good example: in Article 25 the independence of the board is codified. 18. Section 4 of the NSIA Act 2011 describes that the funds are ring-fenced. 19. In some cases, the legislation itself may not describe the objectives but may make reference to other legislation or policy documents, or delegate the development of a mandate to the fund’s supervisory board. For example, the Turkey Wealth Fund legislation requires the board of directors to establish a “three years strategic investment plan comprising the Company and its subsidiaries” (Article 3 of Law No. 6741 on Establishment of

Turkish Wealth Fund management Company [Türkiye varlık Fonu Yönetimi Anonim

Şirketi] and Amendments in Certain Laws published in the Official gazette no. 29813, dated August 26, 2016). 20. For instance, under Section 42, the minister for Finance, after consultation with the

Central Bank, may direct NTmA to invest ISIF assets in specified securities of a credit institution, or underwrite the issue of any securities of a credit institution, if the minister considers it necessary, in the public interest, in order to remedy a serious disturbance in the economy or to prevent potential serious damage to Ireland’s financial system. 21. The group of 20’s November 2008 summit was a defining point, leading to the decision that all significant financial market participants must be regulated to preserve financial stability and to protect investors. 22. Those managers are subject to the provisions of the AIFm Directive as transposed in their home member state. They are required to be approved by the regulatory authorities of their home member state but can also benefit from the management and marketing passporting regimes to provide these services in the territory of other European Economic

Area member states. 23. As explained by morley (2014, 1274–75), investment managers began separating the investment fund from the management companies that advise and oversee the fund nearly 100 years ago, and the separation of funds and managers is now ubiquitous in Europe and the united States. many funds around the world also employ a similar separation between the fund and its managers, even if the labels of the entities used to create the fund and management vehicles differ from jurisdiction to jurisdiction. 24. Of the global Forum on Transparency and Exchange of Information for Tax Purposes, 162 member jurisdictions have committed to implement the international standards to