A Blueprint for Sovereign Wealth Fund Best Practices

Abstract

Management of sovereign wealth funds (SWFs)--pools of government-owned or government-controlled financial assets--has become a major focus of national and international economic and financial policy. The principal reasons are their size, lack of transparency, potential to disrupt financial markets, and the risk that political objectives might influence investment decisions. Truman provides a blueprint for SWF best practices to make them more transparent, predictable, and accountable to their own citizens and governments, citizens and governments of host countries, and participants in financial markets. The blueprint for SWF best practices is based on a scoreboard he has constructed for the current practices of 44 SWFs. The scoreboard contains 33 elements grouped in four categories: structure of the fund, governance, transparency and accountability, and behavior of the fund in managing its portfolio. The elements of the scoreboard can be incorporated into best practices without asking any fund to do something that at least one other fund does not already do. This blueprint meets the substantive principles that have been enunciated by G-7, US, and EU officials and provides a basis for evaluating the results of the International Monetary Fund-sponsored dialogue on SWF best practices.

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