Transparency Necessitates Communication

Ashby Monk

Formerly secretive SWFs may be winning over international audiences with increased transparency, but they are losing domestic support from the revelation of poor investment returns. Some have taken to calling this phenomenon the “Santiago Blues” in reference to the Santiago Principles, which created all sorts of new standards for disclosure. As large losses are reported (which happened quite a bit in 2008), the domestic legitimacy of these funds is in question.

What’s the result? Apparently, these SWFs are shortening their time-horizons so as to ensure short-term gains that will please domestic constituencies (and bolster legitimacy). Indeed, according to Reuters:

“SWFs have sharply reduced their headline activities and come under pressure to invest in instruments or projects that will give visible and accountable returns, rather than in something which will hopefully yield something in a loosely defined, somewhat “long,” investment horizon.”

This fits with the discussions I have had with transparent SWFs the past. However, I still find this type of response to domestic pressure regrettable. In my view, a SWF that invests exclusively for short-term gain is institutionally incoherent. These funds are supposed to be intergenerational!

That SWFs are in fact shrinking their time horizon to obtain domestic legitimacy is a failure of communication. There simply needs to be a coherent dialogue between governments and their citizens about roles and mandates (and this probably should have happened from the moment the SWF was set up).

Transparency isn’t the problem here. As a frequent commentator to this site has noted, “There is no general reason why secrecy should produce better returns.” If SWFs are having trouble at home, it is because they have not successfully communicated with the general public to obtain buy-in; shielded by a veil of secrecy, they were afforded the luxury of ignoring domestic opinion.

So, as I said in a recent post:

“…I don’t view the increasing levels of transparency as a threat to legitimacy. I take the opposite view; transparency may solidify the legitimacy of SWFs over the long term, albeit it with some short- and medium-term costs (that are worth paying).”

I still believe that.

1 Response to “Transparency Necessitates Communication”


  1. 1 rien huizer September 16, 2009 at 9:49 pm

    What is an investment horizon in this context? A period during which there is no reporting of performance? A maximum holding period of investments? The length of an investment management mandate? Seems that the press believes the SWF industry is populated by people who would not pass an elementary course in finance…


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s




About

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.

RSS Feed

 RSS

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 369 other followers

Latest SWF News

Visitors Since August 2010


%d bloggers like this: