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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.
Nowhere is this trend more evident than at China Investment
Corp., the sovereign fund of the worlds largest creditor
nation. CIC was seemingly born in controversy. Its big
investments in Blackstone Group and Morgan Stanley back in
2007, the year the fund was founded, raised hackles in the U.S.
Congress, where some politicians expressed fears that Beijing
might use the fund to pursue its geopolitical objectives.
Almost as quickly, CIC took a bashing at home when the value of
those holdings plunged during the 2008 financial crisis, and
Chinese bloggers criticized the fund for squandering the
Beijing-based CIC has responded to the criticism with a
degree of openness thats remarkable for a Chinese
institution and stands comparison with such entities as
Australias Future Fund and Norways Government
Pension Fund Global, which are among the most transparent of
sovereign funds in disclosing information about their
investment practices. In its annual report for 2010, released
in July, CIC provided the richest detail yet about its
holdings, including a shift in its asset-allocation
strategy to reflect the growing importance of long-term
investments and its decision to adopt a ten-year time horizon
for its portfolio. The fund also disclosed a big move into
alternative investments last year, as well as providing
information about its purchases of stakes in U.S. and
Canadian utilities and resource companies.