The “Santiago Principles” for Sovereign Wealth Funds: The Shortcomings and the Futility of Self-Regulation

Abstract

The risks associated with sovereign wealth funds (SWFs) transactions are essentially two-fold: political, to the extent that SWFs could be used as the armed wing of States’ foreign policy, and economic, since there is a risk of public subsidization or other types of market distortions through their investments. It is within this framework that the idea of international best practices aimed at a better regulation of SWFs was envisaged. This led to the adoption of the “Generally Accepted Principles and Practices” for SWFs, also labelled as the “Santiago Principles”. While the Santiago Principles may be useful for a better regulation of the relationship between fund managers and owners, they are nevertheless absolutely futile for considering and protecting the interests of the host States of sovereign investments. Thus, the Santiago Principles go against their founding objective. To this extent, the Santiago Principles shall not be regarded as a genuine form of international regulation, but rather as a veneer of respectability to improve the way recipient States perceive sovereign investors.