Press Conference Call: International Working Group of Sovereign Wealth Funds
Transcript No. 08/01
September 02, 2008
Santiago, Chile
Mr. Hamad al Suwaidi, Co-Chairman of the IWG, Undersecretary in the Abu Dhabi Department of Finance, and a Director of the Abu Dhabi Investment Authority
Mr. Jaime Caruana, Co-Chairman of the IWF, Counselor and Director of the International Monetary Fund’s Monetary and Capital Markets Department
Mr. David Murray, Chairman of the IWG's Drafting Group, and Chairman of Australia’s Future Fund Board of Guardians
William Murray, Chief of Media Relations, External Relations Department, IMF
MR. MURRAY: Thank you. My apologies for the late start. We've had a lot of work to get through today. I'm William Murray, Chief of Media Relations at the IMF. This is a briefing of the International Working Group of Sovereign Wealth Funds, which just wrapped up two days of talks here in Santiago, Chile. Let me introduce the three principal speakers that we have this evening: Mr. Hamad al Suwaidi, Undersecretary in the Abu Dhabi Department of Finance, and a Director of the Abu Dhabi Investment Authority; Jaime Caruana, Counselor and Director of the Monetary and Capital Markets Department of the IMF; and Mr. David Murray, who is the Chairman of the IWG's Drafting Group, and his official function is he is chairman of Australia's Future Fund Board of Guardians.
You should by now have the press release that the IWG issued. If you do not, send an email to media@imf.org and they will send you a copy right now, media@imf.org
Now let me turn the table over to Mr. al Suwaidi for some brief opening remarks.
MR. AL SUWAIDI: Good evening, ladies and gentlemen. Thank you for joining us on this call tonight. The late hour of this call is a testimony to the hard work that has been accomplished by all the sovereign wealth funds over the course of the past two days here in Santiago. On behalf of all the SWFs, I am particularly pleased to announce that the International Working Group has reached a preliminary agreement on a draft set of Generally Accepted Principles and Practices, or the GAPP, which have been called the "Santiago Principles". To remind you, the GAPP is a voluntary framework that guides the appropriate governance and accountability arrangements as well as the conduct of appropriate investment practices by sovereign wealth funds.
The next step in the process is for each IWG member to recommend the GAPP to their respective governments, which they will do over the coming weeks. The IWG then expects to present the GAPP to the IMFC at its October 11 meeting in Washington, D.C. The GAPP will be published after that meeting. The fact that this agreement has been reached in four months and that the IWG membership comprises of 26 IMF member countries from developed, emerging, and developing economies from all corners of the world with different investment structures, and the fact that the range of funds varies greatly both in size, length of existence, with some around four decades and some more recently established, highlights the considerable achievement. And when you consider that a number of recipient countries have been consulted, as well as the OECD, the World Bank, and the European Commission, it underlines the thoroughness of the whole effort.
Now let me just give you some color on the meeting that we have just successfully concluded in Santiago. We sat in a large room in the Sheraton Hotel and we sat around a large semi-circular table in closed conference for over 24 hours over the past two days. I'm not going to get into the specific points that were discussed, but suffice it to say that there was a very frank exchange between the sovereign wealth funds and the recipient countries on a whole host of topics. A lot of the discussion focused on the need to preserve the economic and financial interests of the sovereign wealth funds so as not to put them at a disadvantage when compared to the other types of investors such as hedge funds, insurance companies, and other institutional investors. However, in the lead up to the Santiago meeting and at the meeting itself, a large number of recipient countries' observations were taken into account in the draft and the recipient countries expressed their gratitude to the sovereign wealth funds.
In addition to the GAPP agreement, I also want to make sure that you are aware of two other significant accomplishments. Firstly, the IWG agreed to explore the creation of a standing group of sovereign wealth funds and this will be done after the IMFC meeting. We hope that this will allow all the sovereign wealth funds on a voluntary basis to continue to ensure that the GAPP is kept under review as appropriate in the future. Secondly, the IWG agreed to issue a survey on sovereign wealth funds in the coming days to give all of you more color on the entities and their operations.
That marks the end of my formal remarks. I'd like to hand you over to Mr. David Murray.
MR. DAVID MURRAY: Thank you. I just want to explain that sovereign wealth funds are very, very different. Their structures are vastly different. Their purposes are different. Their mandates are different. Some are up to 50 years old and more, and there are some very new funds. This means that the investment streams, their asset mixes, their investment policies, are all very different as well. Coming into the Santiago meeting as a consequence of this complexity, I can tell you that there were many people in our group who did not think it was possible for us to get to the point where we could move to consultation with our governments. Nevertheless, we have done that.
Also before I finish I'd like to explain why the IMF was important to our work. The IMF with its 185 members is the only institutional body in the world that has sufficient understanding of the macroeconomic policies and central bank arrangements of those countries and precedence in some of the work they've done that could help us understand ways of approaching the GAPP. Nevertheless, the GAPP remains a voluntary document of the sovereign wealth funds, but that the IMF is easily the best institution to help guide this work. Thank you.
MR. WILLIAM MURRAY: I think now we'll open the floor to questions from the press on this call.
QUESTIONER: Good evening, gentlemen. Thank you for taking the time to talk to us today. I was just curious, I realize that you're not publishing the GAPP. Yes, we can't see a copy of it, but can you give us any indication in terms of the extent to which the GAPP will answer some of the fears of critics of sovereign wealth funds that by allowing sovereign wealth funds to in essence come up with their own rules that they will be very lax in a sort of forgiving set of guidelines, in particular, in light of the fact that the Treasury Department today came out with a report that was very critical of the IMF process for reviewing currency, particularly China's currency? They said that the IMF's process has proven to be ineffective in the last two or three years. Any comments on that would be fantastic as well. Thank you.
MR. DAVID MURRAY: Firstly, I have no knowledge of the Treasury report's comment and the extent to which it relates to this work, and I don't believe it's an IMF process anyway. I can tell you that the time in which this is being done with the technical support of the IMF is extremely short compared with similar circumstances around the world.
You asked about how this will comfort people. The Santiago Principles we expect to be around 24 in number and they cover the legal, institutional, and macroeconomic of each sovereign wealth fund, its governance and accountability arrangements, and investment policies and risk management. In essence, by describing the legal framework and the purpose of the sovereign wealth fund, recipient countries and others in the investment markets can get a very good idea of the type of investors that they will meet in the market.
The governance and accountability arrangements give considerable comfort especially in the area of the separation of operations of the sovereign wealth fund from its owner, and the investment policies and risk management together with the other things are intended to make it clear that sovereign wealth funds act from a commercial motive and not other motives.
QUESTIONER: I had a sort of similar question to what was asked before and you may have answered it. I was looking through the report that was done on February 29, a work agenda, and in there it talked about components of guidelines, the legal framework, so on and so forth. Would you say that the principles that were agreed upon basically followed closely the work agenda that was laid out in late-February?
MR. DAVID MURRAY: Yes. I'd say that the principles that we've brought out for preliminary agreement for consultation now followed precisely the structure we started with and conform with the terms of reference that the IWG commenced with and for that reason we are confident that recipient countries will accept that this a very, very material step forward in terms of giving confidence to the markets and to their own people about the operation of sovereign wealth funds. In fact, the recipient countries have made very positive remarks about the extent of the GAPP, its coverage and the time frame taken to complete it.
QUESTIONER: And can you explain also why you just don't release those principles now?
MR. DAVID MURRAY: Yes. I mentioned in an earlier answer the complexity of the structures of sovereign wealth funds. For example, one sovereign wealth fund is actually no more than an account of the government with its own central bank with a special purpose. This means that it's impossible to describe the legal, institutional, and macroeconomic setting of a sovereign wealth fund without implicating that sovereign wealth fund's government. As a matter of protocol, amongst other things, it is very important that each government is able to see the GAPP before the IMFC meeting, and in some cases, consider and agree with the way in which their own references in the GAPP have been stated.
QUESTIONER: Yes, good evening. I was wondering if you can just tell us how practically this would move forward, including these regulative sort of mechanism that the sovereign wealth funds want to create? Do you see them meeting and discussing certain things? Could you just give me some sort of practical idea of how you plan to move forward?
The other one is, how does one ensure that the sovereign wealth funds are sticking to these guidelines? I mean I know they are voluntary, but surely you can’t have some states sticking to it and others running around doing their own thing. So is there a certain degree of good faith here that sovereign wealth funds will actually keep their investments well-meaning? I’m just wondering if you can comment on that?
MR. AL SUWAIDI: The next steps is for the sovereign wealth funds to present the draft to their respective governments for approval, and the intention is that we present the final product to the IMFC at its October 11 meeting. That’s the way forward, and after that, the GAPP will be published.
With regard to the GAPP, this is a voluntary set of practices. The sovereign wealth funds will publicly announce their adoption of the GAPP once it’s approved. And then it’s for the public really to see where the respective funds are adhering to these principals and practices.
QUESTIONER: Could you tell me if there’s going to be any sort of monitoring of these, by the IMF, of these sovereign wealth funds—any annual reviews, anything like that?
MR. DAVID MURRAY: Again, this is a voluntary document of the sovereign wealth funds, it is not a document of the IMF. However, we’ve reached agreement to explore the creation of a standing group of sovereign wealth funds. It’ll take us a little time to figure out how to structure that because of this very unusual and complex nature of the structures of the funds themselves. But we did agree that one of the benefits of having such a group would be to be able to, in a dynamic sense, understand the implication of the GAPP and, if necessary, review it, and to maintain a lot of dialogue amongst sovereign wealth funds themselves about current issues that would be of value to us and of value to recipient countries in particular.
QUESTIONER: I just wanted to follow up on that last question. Well, two questions: One, it sounds as if, to the degree there is any policing, it’s self-policing. And to the point that was made earlier about not wanting to be disadvantaged compared to insurance companies and private hedge funds and so on, what was the feeling among the groups? I mean presumably you will be operating in a more public fashion; won’t that put you at a disadvantage?
MR. DAVID MURRAY: The group agreed that it would be very beneficial to the whole global system to take some steps to give comfort to recipient countries, which means, in essence, that the group believes that even though we’re an investor like other investors, there’s an aspect of public responsibility in our work, that is we’re public institutions, not private institutions.
On the other hand, sovereign wealth funds have to compete in the market, and there are two implications of that, one in terms of the confidentiality of arrangements that other people make with sovereign wealth funds and the protection of that confidentiality, and the confidentiality of their day-to-day transacting, but also the notion that if other parties in the market believe that a sovereign wealth fund can be forced to disclose certain information, then that would close down the range of people who would be prepared to deal with sovereign wealth funds.
So disclosure is important, but as with an other institutional investor, there must be a limit which protects confidentiality of dealings for sovereign wealth funds and their counter parties.
QUESTIONER: And to the degree, just again on policing, although I know that’s a stronger term that you would use, or regulation, whatever you want to say, it would be self-policing, self-regulation, you don’t see any role say in an IMF Article IV or something of that sort?
MR. DAVID MURRAY: Well, some sort of word from the IMF would not be consistent with what we’ve done, because this is a voluntary set of principals. I believe that, because the sovereign wealth funds are public bodies, and the GAPP sets a sort of benchmark by which sovereign wealth funds – how they stand, I think it’ll be relatively easy for the world at large to determine whether sovereign wealth funds down the track have been serious about the GAPP.
QUESTIONER: I just want to make clear, I mean so the IMF in its Article IV consultations with governments, does the IMF generally look at the sovereign wealth funds and the stability of them within that particular country? I just want to clarify that.
MR. CARUANA: I think we have to differentiate the Article IV process from the IWG process we are discussing. The IMF is already interacting with the sovereign wealth funds because these are public entities. You can see references in Article IV reports and in the Global Financial Stability Report. This was already happening, even before these Generally Accepted Principles and Practices were produced. What we have been trying to say is that these general principals and practices are not meant to be an exercise of surveillance by the Fund. This is different. Also, in the principals that have been agreed by the sovereign wealth funds, there is one principal where a process of regular review of implementation is called for.
So this is one of the principals that will address this issue. The Fund continues to do the Article IVs, and the sovereign wealth funds have already been part of this consultation process, but this a different thing and it has a process of review in itself. Finally, let me remind you that the Fund has been really a facilitator, a coordinator of the work (by the IWG). This is really a process where the sovereign wealth funds are the owners of the product.
QUESTIONER: Okay. And, Mr. Murray, you were saying earlier that governments would come out and state that they’re signing onto the GAPP. Do you think in some ways that would set some sovereign wealth funds apart from others, and that markets would generally move towards, or generally accept those government – those sovereign wealth funds that have signed up to the GAPP as opposed to others?
MR. DAVID MURRAY: No; this is not a process where individual governments will come out and say that.
QUESTIONER: Okay.
MR. DAVID MURRAY: But you can assume that the GAPP that’s presented to the IMFC will have been the subject of government consultations between SWF and their governments. What was the second part of your question?
QUESTIONER: And whether governments that sign up to the GAPP, or sovereign wealth funds sign up to the GAPP will be set apart from those that don't?
MR. DAVID MURRAY: No; Jaime Caruana just mentioned that part of the GAPP itself is a principal which deals with a review of implementation of the GAPP by the sovereign wealth funds themselves. That means they, themselves, are signing up for a review. Now, the only qualification on that is that there's a very big difference between a newly established sovereign wealth fund, of which I’m one, and very much longer established sovereign wealth funds, in getting together their risk management frameworks, their investment practices, and so on. And so we have acknowledged that the sovereign wealth funds will adopt a GAPP or aspire to it, and that's only to give room for newly established funds to get all of their systems in place.
QUESTIONER: Okay, I understand. Thank you very much.
MR. WILLIAM MURRAY: Let me thank everybody for joining us this evening. Let me also repeat Mr. Murray's title, I did that rather quickly at the top, so everybody has it. David Murray, M-u-r-r-a-y, he is Chairman of the Future Fund Board of Guardians. It’s, as he mentioned, the Australian SWF. Thank you again for joining us. Thank you, Mr. al Suwaidi, Mr. Caruana, and everybody that’s been involved in the IWG, including the Chileans, thanks.