The Santiago Principles are a set of 24 voluntary guidelines designed for Sovereign Wealth Funds (SWFs). Think of them as a 'code of good conduct' for these massive, state-owned investment vehicles. Officially known as the “Generally Accepted Principles and Practices,” they were established in 2008 by a group of the world's largest SWFs to improve transparency and build trust with countries receiving their investments. The name comes from Santiago, Chile, where the final agreement was reached. At a time when the rapid growth of SWFs was making some governments nervous about politically motivated investments, these principles were a crucial step. They assure the global community that an SWF's investment decisions are based on sound economic and financial reasoning, not on advancing a foreign government's geopolitical agenda. For everyday investors, this means more predictable and stable markets.
You might think a set of rules for multi-billion-dollar government funds has little to do with your personal portfolio. Think again! When a massive Sovereign Wealth Fund buys a significant stake in a major public company—say, a European car manufacturer or an American tech giant—you want to know their intentions. Are they a stable, long-term partner focused on financial returns, or a political tool that could destabilize the company for non-financial reasons? The Santiago Principles act as a global benchmark for good behavior. When an SWF commits to them, it's signaling to the market that it intends to play by the rules. This transparency reduces uncertainty and helps prevent market panic or politically-driven sell-offs. For you, the investor, this creates a more stable playing field where a company's success is driven by its business fundamentals—the very thing a value investing approach relies on—rather than by the unpredictable whims of a foreign state.
Listing all 24 principles would be a snoozefest. Instead, let's break them down into three key themes, which is how they are officially structured by the International Forum of Sovereign Wealth Funds (IFSWF), the body that maintains the principles.
This first batch is all about setting the foundation. It ensures the SWF has a solid legal basis, a publicly disclosed purpose (e.g., to save for future generations or stabilize the economy), and a clear investment policy. It also clarifies how the SWF coordinates with the government's other fiscal and monetary authorities, ensuring everyone is on the same page. In simple terms, it answers the questions: Who are you, what is your purpose, and who's in charge?
This is the core of accountability. These principles dictate that the SWF should have a robust corporate governance structure with clear lines of responsibility. The governing bodies should act in the best interest of the SWF, and operational management should have independence. This section emphasizes the need for transparency through annual reports and independent audits. It’s designed to separate the fund's day-to-day investment decisions from the political arm of the government, which is a major concern for recipient countries.
This is where the rubber meets the road. This group of principles is crucial for market participants.
For a value investor, the world is noisy enough without having to guess the political motives behind a major shareholder's actions. The Santiago Principles are a welcome dose of clarity and predictability. When an SWF adheres to these principles, it behaves more like a rational, long-term institutional investor—think Warren Buffett's Berkshire Hathaway, but state-owned. Such an investor makes decisions based on economic merit, supports good corporate governance, and holds investments for the long haul. This is music to a value investor's ears. A company with a Santiago-compliant SWF on its shareholder register is often a sign of stability. It suggests the presence of 'patient capital' that won't flee at the first sign of trouble, allowing the company's intrinsic value to be realized over time. In essence, the principles help create the kind of stable, rational market environment where a fundamental, value-oriented strategy is most likely to succeed.