Transparency in investments is a motherhood-type goal, universally considered good for all involved. This is at least open to some analysis.
Over the past year sovereign wealth funds (SWFs) have captured the minds, if not hearts, of politicians, economists and funds managers as they emerge to change the political, financial and investment landscape of the world. Actually, they have probably captured the hearts of funds managers too, who will be big beneficiaries of their investment strategies.
What they have been criticized for has tended to be political, questioning their motivations for various proposed investments. Critics say they are not transparent, at least as far as their intentions go. In an interview last month with the US ‘60 Minutes’ television program, the newest and most politically watched SWF, the $US200 billion China Investment Corporation (CIC), indicated that it would become as transparent as the best fund of its kind in the world.
Right now, it is far from it, however the CIC was only formed last August and was scheduled to appoint its first asset consultants as this magazine went to press. The Sovereign Wealth Fund Institute of the US, a not-for-profit organisation formed last year to provide research and information about SWFs around the world, has come up with a ‘transparency index’ whereby it assesses the universe of 42 SWFs on a range of criteria.
On this index, Australia’s own Future Fund rates very well, coming second only to the Government Pension Fund of Norway for transparency as at March this year. The chart shows transparency and passive/active axes with not much link between the two. The Linaburg-Maduell transparency index, named after the institute’s founders, Carl Linaburg and Michael Maduell, looks at 10 ‘principles’ which the researchers say go to make up transparency. They are not particularly demanding criteria. The principles are that the fund:
- Provides history including reason for creation, origins of wealth and government ownership structure
- Provides independently audited annual reports . provides ownership percentages of company holdings, financial returns and geographic locations of holdings
- Provides size, if applicable, composition and return of foreign exchange reserves
- Provides guidelines in reference to ethical standards, investment policies, remuneration policies and ‘enforcer’ of guidelines
- Provides clear strategies and objectives
- Clearly identifies, if applicable, subsidiaries and contact information
- Identifies external managers, if applicable
- Manages its own web site . provides main office location address and contact information such as telephone and fax.