IWG Survey of Institutional and Operational Practices

By Brett Keller

The International Working Group (IWG) of Sovereign Wealth Funds (SWFs) has published an anonymous Survey of Institutional and Operational Practice conducted by IMF staff. The responses to this survey of members of the IWG were used as background information to assist in the development of the Generally Accepted Principles and Practices for SWFs (GAPP).

You can read their summary or go directly to the PDF. The survey offers insights under three headings:

  • Legal Framework, Objectives and Macroeconomic Linkages
  • Institutional Framework and Governance Structure
  • Investment Policies and Risk Management Frameworks

SWFs are in flux as they adjust to the constantly shifting financial and political winds:

About a third of the respondents are currently in the process of reviewing or initiating changes in their organizational structure (governance, staffing) or in their existing strategies (investment policy).

Some (non-exhaustive) findings from the survey:

  • SWFs’ financial statements are subject to the professional judgment of internal and appointed external auditing entities, although with varying institutional settings…
  • All respondents indicate that they have internal audit arrangements in place. In some SWFs, internal auditing is undertaken by independent auditors, such as accounting firms or temporarily appointed statutory auditors. Other SWFs have established internal audit divisions…
  • External audits are in most cases performed by independent, internationally recognized accounting firms…
  • Public disclosure by SWFs that are not separate legal entities varies significantly…
  • The majority of respondents indicate that they have specific investment objectives. While a number of funds maximize returns relative to a benchmark, others have absolute return objectives, but the risk constraint plays an important role as the feasible set of returns changes over time (after the objective has been set)…
  • Some SWFs indicate that they use an asset approach in determining their investment strategy, and one SWF explicitly states that it uses an asset-liability approach…
  • Risk objectives are typically determined by the owner or the governing body of the SWF…The most common risk measures and methods to manage financial risks are credit ratings, value-at-risk models, tracking error, duration, and currency weights.
  • Several SWFs point out that operational risk is controlled through separation of responsibilities, including front, middle, and back offices…
  • The proportion of assets managed by external asset managers varies widely across the respondents in line with the adopted investment strategies…

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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