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Sovereign Wealth Funds

Sovereign Wealth Funds (SWFs) are state-owned investment vehicles, which typically look to invest the receipts from budget or trade surpluses (e.g. from oil revenues).  They are not new: the first SWF dates from 1953.

In response to concerns from Member States, the Commission presented a Communication on the issue in February 2008, proposing a common EU approach (see also FAQ Choose translations of the previous link ).

In this Communication, the Commission noted that whilst SWFs benefited the global capital market and provided funding for global investment and could contribute to financial stability, they also raise concerns in terms of accumulated current account imbalances, the intentions behind SWFs investments, transparency and good governance, so:

'A more specific concern raised by SWF investment in equities relates to the opaque way in which some SWFs function and their possible use as an instrument to gain strategic control.  […] SWF investment in certain sectors could be used for ends other than for maximising return.' (more

The Commission argued that no further legislation was required for the time being and called for a common EU approach based on the following principles:

  • Commitment to an open investment environment;
  • Support of multilateral work;
  • Use of existing instruments;
  • Respect of Treaty obligations and international commitments; and
  • Proportionality and transparency.

In addition, it argued that:

'the right approach is to promote a cooperative effort between recipient countries and SWFs and their sponsor countries to establish a set of principles ensuring the transparency, predictability and accountability of SWFs investments.  It is essential that all relevant actors are actively involved in the creation of a balanced and stable framework covering SWF investments.'

As a response, in October 2008, the International Working Group of Sovereign Wealth Funds (IWG) composed of SWFs and government representatives of 23 countries and assisted by the International Monetary Fund (IMF) agreed a set of 24 "Generally Accepted Principles and Practices (GAPP), known as the "Santiago Principles", covering transparency and governance arrangements. The Commission took an active part in the drafting process. The Commission welcomed these Principles and valued and appreciated the considerable effort made by the SWFs included in the International Working Group and their sponsor countries. The Santiago Principles will in both home and recipient countries: improve the understanding of the objectives, structures, and governance arrangements of SWFs; enhance the understanding of SWFs as economically and financially oriented entities; and help maintain an open and stable investment climate.

These principles were a first step towards a new environment for global investment. Since then, the focus has been on the implementation of these principles. The sponsor countries of SWFs and the recipient countries have an important responsibility: they will all have to comply, respect and also develop these principles in the future to ensure that the international investment environment will remain open. As such, the EU has continued and will continue to review the situation and the implementation of the principles. The European Commission takes part at the meetings of the International Forum of Sovereign Wealth Funds (IFSWF) which continues the work of the IWG. At the third meeting of the IFSWF, which took place in Beijing on 11-13 May 2011, the IFSWF published on its website the answers to the questions on the implementation of the Santiago Principles submitted by the European Commission in Baku on 8-10 October 2009 at the first meeting of the IFSWF

The Commission has continued to have regular bilateral contacts with SWFs, collectively and individually, and intends to continue to play this constructive role, act as a facilitator, monitor the situation actively and take vigorous action to ensure the free movement of capital as guaranteed by the Treaty.