Sovereign Wealth Funds (SWFs) have in March 2020 alone, cumulatively lost hundreds of billions of $ in citizens accumulated wealth. Attributing this to adverse market movements is hardly an excuse. I observe that most SWFs have been on ‘auto pilot’, driven by inertia after they were formed. Meanwhile much has changed in their external and internal country environments. This naturally has ramifications on the legal framework within which such vehicles now operate, as well as their initial objectives and macroeconomic linkages with national economies. This in turn influences their investment policies and risk management frameworks. In my view the Coronacrisis should catalyze fundamental rethink of a Fund’s institutional framework and governance structure.
I believe that this is a good time for soul searching. For whether a SWF is placed under the supervision of the Ministry of Finance, or the Central Bank, or is run as an independent entity has enormous importance going forward. Something that I highlight here, as well as will build upon in subsequent postings.