The Santiago Principles

The International Working Group of Sovereign Wealth Funds created a set of 24 best practices called the Generally Accepted Principles and Practices (GAPP) or the Santiago Principles:

  • 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 the legal soundness of the SWF and its transactions.
    • 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 the other state bodies, should be publicly disclosed.
  • GAPP 2. Principle
    The policy purpose of the SWF should be clearly defined and publicly disclosed.
  • GAPP 3. Principle
    Where the SWF’s activities have significant direct domestic macroeconomic implications, those activities should be closely coordinated with the domestic fiscal and monetary authorities, so as to ensure consistency with the overall macroeconomic policies.
  • GAPP 4. Principle There should be clear and publicly disclosed policies, rules, procedures, or arrangements in relation to the SWF’s general approach to funding, withdrawal, and spending operations.
    • GAPP 4.1 Subprinciple The source of SWF funding should be publicly disclosed.
    • GAPP 4.2 Subprinciple The general approach to withdrawals from the SWF and spending on behalf of the government should be publicly disclosed.
  • GAPP 5. Principle
    The relevant statistical data pertaining to the SWF should be reported on a timely basis to the owner, or as otherwise required, for inclusion where appropriate in macroeconomic data sets.
  • GAPP 6. Principle
    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.
  • GAPP 7. Principle
    The owner should set the objectives of the SWF, appoint the members of its governing body(ies) in accordance with clearly defined procedures, and exercise oversight over the SWF’s operations.
  • GAPP 8. Principle
    The governing body(ies) should act in the best interests of the SWF, and have a clear mandate and adequate authority and competency to carry out its functions.
  • GAPP 9. Principle
    The operational management of the SWF should implement the SWF’s strategies in an independent manner and in accordance with clearly defined responsibilities.
  • GAPP 10. Principle
    The accountability framework for the SWF’s operations should be clearly defined in the relevant legislation, charter, other constitutive documents, or management agreement.
  • GAPP 11. Principle
    An annual report and accompanying financial statements on the SWF’s operations and performance should be prepared in a timely fashion and in accordance with recognized international or national accounting standards in a consistent manner.
  • GAPP 12. Principle
    The SWF’s operations and financial statements should be audited annually in accordance with recognized international or national auditing standards in a consistent manner.
  • GAPP 13. Principle
    Professional and ethical standards should be clearly defined and made known to the members of the SWF’s governing body(ies), management, and staff.
  • GAPP 14. Principle
    Dealing with third parties for the purpose of the SWF’s operational management should be based on economic and financial grounds, and follow clear rules and procedures.
  • 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.
  • GAPP 16. Principle
    The governance framework and objectives, as well as the manner in which the SWF’s management is operationally independent from the owner, should be publicly disclosed.
  • GAPP 17. Principle
    Relevant financial information regarding the SWF should be publicly disclosed to demonstrate its economic and financial orientation, so as to contribute to stability in international financial markets and enhance trust in recipient countries.
  • GAPP 18. Principle
    The SWF’s investment policy should be clear and consistent with its defined objectives, risk tolerance, and investment strategy, as set by the owner or the governing body(ies), and be based on sound portfolio management principles.

    • GAPP 18.1 Subprinciple The investment policy should guide the SWF’s financial risk exposures and the possible use of leverage.
    • GAPP 18.2 Subprinciple The investment policy should address the extent to which internal and/or external investment managers are used, the range of their activities and authority, and the process by which they are selected and their performance monitored.
    • GAPP 18.3 Subprinciple A description of the investment policy of the SWF should be publicly disclosed.
  • GAPP 19. Principle
    The SWF’s investment decisions should aim to maximize risk-adjusted financial returns in a manner consistent with its investment policy, and based on economic and financial grounds.

    • GAPP 19.1 Subprinciple If investment decisions are subject to other than economic and financial considerations, these should be clearly set out in the investment policy and be publicly disclosed.
    • GAPP 19.2 Subprinciple The management of an SWF’s assets should be consistent with what is generally accepted as sound asset management principles.
  • GAPP 20. Principle
    The SWF should not seek or take advantage of privileged information or inappropriate influence by the broader government in competing with private entities.
  • GAPP 21. Principle
    SWFs view shareholder ownership rights as a fundamental element of their equity investments’ value. If an SWF chooses to exercise its ownership rights, it should do so in a manner that is consistent with its investment policy and protects the financial value of its investments. The SWF should publicly disclose its general approach to voting securities of listed entities, including the key factors guiding its exercise of ownership rights.
  • GAPP 22. Principle
    The SWF should have a framework that identifies, assesses, and manages the risks of its operations.

    • GAPP 22.1 Subprinciple The risk management framework should include reliable information and timely reporting systems, which should enable the adequate monitoring and management of relevant risks within acceptable parameters and levels, control and incentive mechanisms, codes of conduct, business continuity planning, and an independent audit function.
    • GAPP 22.2 Subprinciple The general approach to the SWF’s risk management framework should be publicly disclosed.
  • GAPP 23. Principle
    The assets and investment performance (absolute and relative to benchmarks, if any) of the SWF should be measured and reported to the owner according to clearly defined principles or standards.
  • GAPP 24. Principle
    A process of regular review of the implementation of the GAPP should be engaged in by or on behalf of the SWF.

There is also a Full Report on the Santiago Principles (.pdf).