Sovereign wealth and transparency

September 17, 2009
Singapore Democrats

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Natsuko Waki

It was less than two years ago that French President Nicholas Sarkozy hit out at sovereign wealth funds, saying “We’ve decided not to let ourselves be sold down the river by speculative funds, by unscrupulous attitudes which do not meet the transparency criteria one is entitled to expect in a civilised world. It’s unacceptable and we have decided not to accept it.”

Now Western politicians have got what they wanted. SWFs have formed a working group, set out best practices under the Santiago Principles, started to meet regularly, and many of them are publishing performance reports (see examples of Mubadala, Temasek, and CIC)  – all helping to enhance transparency in the often opaque industry.

But too much transparency might not be all good. As discussed here, pressure to open up and prove their performance to the general public might lead them to prefer instruments which are certain to give returns — such as fixed income securities, rather than equity stake building that may take years to yield fruit.

After all, SWFs are unique investors who can afford to take liquidity premium and invest in something which may only give returns in decades or even centuries. If wealth is for future generations, why not