GAPP Principle 19

Ashby Monk

I’ve had a few comments and more emails about a previous post in which I highlight some potential evidence for political influence over SWF investment decision-making. In general, the recurring comment from readers is ‘So what if SWFs are political? They are after all political institutions managing government money.’ As I said in the post, I’m sympathetic to this view:

“This is after all government cash, not pension cash, so why not use it for the benefit of the country during times of crisis.”

Nonetheless, the issue of politicized investing is still of interest. However, since 2007 when western concerns nearly resulted in protectionism, we now have the Santiago Principles. Indeed, when I think about this issue I now refer to GAPP Principle 19 and specifically its subsection 19.1.

This basically says that SWFs should maximize risk adjusted returns. However, it goes on to say that if the fund decides not to do so, then it should be transparent and disclose the motivations that underpin the investment. In other words, politicians can influence SWF investments so long as this influence is disclosed. This is the standard that the SWFs themselves created and signed up to.

This standard seems to work. For example, Korea is being very transparent today about a plan to cooperate with its own SWF in securing energy assets. As I understand it, the Korean government will use its SWF to pick up strategic assets that will benefit the country as a whole, which is not what I would call purely commercial. None of the press articles I’ve read (albeit quickly while on vacation) have viewed this as polemical.

So perhaps the issue is not ‘politicized investing’. Rather, it is breaching GAPP 19.

2 Responses to “GAPP Principle 19”


  1. 1 rien huizer August 18, 2009 at 9:52 am

    I would expect that if the standard is working, states would move less GAPP-conforming , but politically motivated activities into other entities. There is a political need for sterilization, for keeping “off balance sheet reserves”, for strategic foreign investment and for the sort of things that the Gulf funds do, to name only a few motives for this kind of activity in the service of maintaining social or tribal order and regime legitimization. Transparent, prim SWFs would then have a limited utility and exist only in a few, resource-rich market economies with decent overall governance (as a minimum social-democratic) and the rule of law.

  2. 2 Ashby Monk August 18, 2009 at 1:09 pm

    Fair point! I’ve heard a lot of complaints that having CIC signed up to the GAPP does little so long as SAFE is not.


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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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