Stung by political resistance to their global investing ambitions, a group of leading sovereign wealth funds met three years ago with representatives of the U.S., European governments and the International Monetary Fund to agree on a code of conduct. They approved a document that called on funds to adhere to good governance standards, be more transparent about their activities and invest on economic — not political — grounds. The so-­called Santiago Principles, named after the Chilean city where the two camps met, were lauded by the participants as an achievement that would reassure skeptics and maintain free flows of capital. Few outsiders were convinced, though. The wording of the principles was vague, compliance was voluntary, and there were few signs that sovereign funds took the initiative seriously. The principles seemed like little more than a public relations exercise aimed at keeping Western markets open to these giant pools of money.

Today that modest beginning is spawning a quiet revolution. Under the auspices of the International Forum of Sovereign Wealth Funds, which was established in 2009, the Santiago Principles are gaining wider acceptance among a range of leading sovereign wealth funds. As a result, some of the largest and most opaque funds are changing the way they interact with their domestic stakeholders, governments of recipient countries, external fund managers and even each other. The principles are also influencing the design of a whole new generation of sovereign funds being created in Africa and Latin America, and that impact in turn is making transparency increasingly the norm rather than the exception. The changes are happening gradually, but momentum is discernible in every annual report, executive profile and investment strategy now published and discussed.

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