Sovereign Wealth Funds Best Practices

The owners of the SWFs are responsible for holding, administering and managing the financial
assets of the country to obtain the financial objections of macroeconomic stability of the
economy. The Funds usually have diverse legal, institutional, and governance structures.
To ensure the overall best results of the Fund its management should be based on the Twenty-
Four (24) Santiago Principles ( GAAP) , these principles can be categories into three key focus
areas:

 Legal framework, objectives, and coordination with macroeconomic policies

 Institutional framework and governance structure.
 Investment and risk management framework
Legal framework, objectives, and coordination with macroeconomic policies
The SWF should have clearly defined objectives and clearly outline how the rules and regulation
of the Fund. Accountability to the citizens of the home country of the SWF. Transparency about
the fund’s structure and operations should be clearly stated with the Act. Sound practices and
principles facilitate formulation of appropriate investment strategies consistent with the SWF's
stated policy objectives.

Institutional framework and governance structure.

The governance category covers the respective roles of the government and fund managers in
conducting the operations of an SWF and also the use of corporate governance and ethical
guidelines as part of those activities. A sound governance structure that separates the functions
of the owner, governing body, and management facilitates operational independence in the
management of the SWF to pursue investment decisions and investment operations free of
political influence
Investment and risk management framework
The pillar of the principles combines the investment mandate and the risk management with
features that may be of concern to the general public because of the potentially large scale of
SWF investment activities. A clear and concise investment policy ensure that the fund is subject
to disciplined practices and rules, the risk management framework promotes the soundness and
transparency of its investment operations and accountability to the stakeholders.
Santiago Principles Adherence by both the HSF and the NRF

Pillar One (1)

Legal framework, objectives, and coordination with macroeconomic policies
Principle 1 Description:
1. The legal framework for the SWF should be sound and support its effective operation and the
achievement of its stated objective(s).
1.1. The legal framework for the SWF should ensure legal soundness of the SWF and its
transactions.
1.2. The key features of the SWF’s legal basis and structure, as well as the legal relationship
between the SWF and other state bodies, should be publicly disclosed.

 Principle 1 Implementation Trinidad and Tobago:

The legal framework for the Heritage and Stabilisation Fund (HSF) is publicly disclosed in the
Heritage and Stabilisation Fund Act, 2007 (HSF Act). The HSF Act outlines the purpose of the HSF
and the conditions for deposit to and withdrawal from the Fund. The Act defines the roles and
responsibilities of the Board of Governors of the HSF in addition to the role of the Central Bank.

 Principle 1 Implementation Guyana:

The Legal framework of the Natural Resources Fund is publically disclosed in the Natural Resource
Act, 2019 (NRF Act). The Act outline the purpose of the NRF and the condition for deposits and
withdrawals from the fund. The Act also defines the roles of the Pubic Oversight Committee, the
Investment Committee, the Macroeconomic Committee and in addition to the role of Bank of
Guyana as the Manager of the fund.
Principle 2 Description:
The policy purpose of the SWF should be clearly defined and publicly disclosed.

 Principle 2 Implementation Trinidad and Tobago:

The purpose of the HSF is clearly articulated in the HSF Act as follows:
a) To cushion the impact on or sustain public expenditure capacity during periods of revenue
downturn whether caused by a fall in prices of crude oil or natural gas;
b) To generate an alternate stream of income so as to support public expenditure capacity
as a result of revenue downturn caused by the depletion of non-renewable petroleum
resources; and;
 c) Provide a heritage for future generations of citizens of Trinidad and Tobago, from savings
and investment income derived from the excess of petroleum revenues.
 Principle 2 Implementation Guyana:
The purpose of the Fund is to manage the natural resource wealth of Guyana for the present and
future benefit of the people in an effective and efficient manner by :

a) Ensuring that volatility in natural resource revenues do not lead to volatile public
spending;
b) Ensuring that natural resource revenues do not lead to a loss of economic
competitiveness;
c) Fairly transferring natural resource wealth across generations to ensure that future
generations benefit from natural resource wealth; and
d) Using natural resource wealth to finance national development priorities including any
initiative aimed at realising an inclusive green economy.

Principle 3 Description:
3. Where the SWF’s activities have significant direct domestic macroeconomic implications, those
activities should be closely coordinated with the domestic fiscal and monetary authorities, so as
to ensure consistency with the overall macroeconomic policies.

 Principle 3 Implementation Trinidad and Tobago:

The Heritage and Stabilisation Fund (HSF) is not invested domestically so its investment activities
do not have any significant direct domestic macroeconomic implications. However, the
stabilisation objective of the Fund which is to cushion the impact of severe shortfalls in revenue
during periods of depressed petroleum prices allows for the Ministry of Finance to take decisions
regarding the timing and amount of funds to be withdrawn from the HSF. These decisions can
significantly impact domestic macroeconomic conditions. Co-ordination with the fiscal and
monetary authority is facilitated on an ongoing basis primarily through the HSF Board which is
comprised of at least one representative from the Central Bank and one representative from the
Ministry of Finance.
  Principle 3 Implementation Guyana:
The Natural Resources Fund Act is not invested domestically so its investments activities do not
have a significant impact on the domestic macroscopic stability. The Macroeconomic function of
the fund is to ensure the stability of the local economy and to aid in National Development.
Ministry of Finance to take decisions regarding the timing and amount of funds to be withdrawn
from the NRF with advice from the Macroeconomic committee on the Economically Sustainable
Amount.
Principle 4 Description:
4. There should be clear and publicly disclosed policies, rules, procedures, or arrangements in
relation to the SWF’s general approach to funding, withdrawal, and spending operations.
4.1. The source of SWF funding should be publicly disclosed.
4.2. The general approach to withdrawals from the SWF and spending on behalf of the
government should be publicly disclosed.

 Principle 4 Implementation Trinidad and Tobago:

Policies, rules, procedures and/or arrangements on the HSF’s funding, withdrawal and spending
are disclosed in the HSF Act. The specific withdrawal and spending rules are articulated in sections
13 through 15 of the Act and the source of funding is stipulated in section 12.

 Principle 4 Implementation Guyana:

Policies, rules, procedures and/or arrangements on the NRF’s funding, withdrawal and spending
are disclosed in the NRF Act. The specific withdrawal and spending rules are articulated in
sections 22 through 30 of the Act and the source of funding is stipulated in section 21
Principle 5 Description:
5. The relevant statistical data pertaining to the SWF should be reported on a timely basis to the
owner, or as otherwise required, for inclusion where appropriate in macroeconomic data sets.

 Principle 5 Implementation Trinidad and Tobago:

The Central Bank of Trinidad & Tobago reports to the Board of Governors of the HSF on various
aspects of the Fund, including providing statistical data.

 Principle 5 Implementation Guyana:

The Bank of Guyana reports to the Minister of Finance and the Public Oversight Committee on
various aspects of the Fund, including providing statistical data.
Pillar Two (2)
Institutional Framework and Governance Structure
Principle 6 Description:
6. The governance framework for the SWF should be sound and establish a clear and effective
division of roles and responsibilities in order to facilitate accountability and operational
independence in the management of the SWF to pursue its objectives.

 Principle 6 Implementation Trinidad and Tobago:

In accordance with the HSF Act, the Board of Governors comprises five members. The
responsibility for the management of the Fund was delegated to the Central Bank of Trinidad and
Tobago, which acts as agent for and on behalf of the Heritage and Stabilisation Fund. The role of
the Central Bank of Trinidad and Tobago is further detailed in the HSF Act and an Instrument of
Delegation.

 Principle 6 Implementation Guyana:

In accordance with the NRF Act, the Public Oversight Committee comprise of twenty-two (22)
members, an Investment Committee and Macroeconomic Committee comprising of six (6)
members each. The responsibility for the management of the Fund was delegated to the Bank of
Guyana, which acts as agent for and on behalf of the Natural Recourses Fund. The role of BOG is
detailed in the Act.
Principle 7 Description:
7. The owner should set the objectives of the SWF, appoint the members of its governing body
(ies) in accordance with clearly defined procedures, and exercise oversight over the SWF’s
operations.

 Principle 7 Implementation Trinidad and Tobago:

The objectives of the Fund are set out in the HSF Act, which also outlines the process for the
appointment of the Board of Governors for the Fund.

 Principle 7 Implementation Guyana:

The objectives of the Fund are set out in the NRF Act, which also outlines the process for the
appointment of the Committee Members for the Fund.
Principle 8 Description:
8. The governing body(ies) should act in the best interests of the SWF, and have a clear mandate
and adequate authority and competency to carry out its functions.
  Principle 8 Implementation Trinidad and Tobago:
Section 9 of the HSF Act gives the Board of Governors the authority to determine the governance
structure and the operational and investment guidelines of the Fund. It also entrusts the Board
with the responsibility for the management of the Fund in addition to requiring that the Board
perform the requisite duties to carry out the purposes of the Fund. The HSF Act also requires that
the Board be comprised of persons with proved competence in specific areas of expertise.

 Principle 8 Implementation Guyana:

According to Section of the NRF Act the Minister of Finance is responsibility for the managing of
the Fund. The Public Oversight Committee is responsible for monitoring and evaluating whether
the Fund has been managed in accordance with the principles of transparency, good governance
and international best practices including the Santiago Principles. The Investment and
Macroeconomic Committee perform the requisite duties to carry out the purposes of the Fund.
The NRF Act also requires that the Committee Members be comprised of persons with proved
competence in specific areas of expertise.
Principle 9 Description:
9. The operational management of the SWF should implement the SWF’s strategies in an
independent manner and in accordance with clearly defined responsibilities.

 Principle 9 Implementation Trinidad and Tobago:

In accordance with the Act, the Central Bank of Trinidad and Tobago has been delegated the
responsibility to manage the HSF by the Board of Governors. The Bank has outsourced the
investment management of the Fund to external asset managers. The responsibilities of all
parties are clearly defined in Investment Management Agreements as well as the Instrument of
Delegation.

 Principle 9 Implementation Guyana:

The Operational responsibility of the Fund will be done by the Bank of Guyana as delegated by
the Minister of Finance. The Bank’s function will be specified by the Investment Mandate and the
Operational Agreement. The Bank can outsource the Investment and Management aspect of the
Fund to private managers and custodians. The responsibilities of all parties are clearly defined in
Investment Management Agreements as well as the Instrument of Investment.
Principle 10 Description:
10. The accountability framework for the SWF’s operations should be clearly defined in the
relevant legislation, charter, other constitutive documents, or management agreement.

 Principle 10 Implementation Trinidad and Tobago:

The accountability framework for the HSF is clearly defined in the HSF Act, the Instrument of
Delegation, the Operational and Investment Policy and Investment Management Agreements.

 Principle 10 Implementation Guyana:

The accountability framework of the NRF is clearly defined by the Act. The Investment Mandate
and the operational agreement will detailed the policy and the Bank shall establish risk
management arrangements and all necessary internal management systems for the operational
management of the Fund.
Principle 11 Description:
11. An annual report and accompanying financial statements on the SWF’s operations and
performance should be prepared in a timely fashion and in accordance with recognized
international or national accounting standards in a consistent manner.

 Principle 11 Implementation Trinidad and Tobago:

As required by the HSF Act, the Central Bank of Trinidad and Tobago prepares and submits to the
Board of Governors, an annual report and the financial statements of the HSF, two months after
the end of the financial year. These are prepared in accordance with recognised accounting
standards.

 Principle 11 Implementation Guyana:

As required by the Act the bank of Guyana will prepare and submit to the Minister, an annual
report and the financial statements of the NRF, two months after the end of the financial year.
These are prepared in accordance with recognised accounting standards. The Bank shall, not later
than twelve working days after the end of each month, submit to the Minister monthly reports
on the Fund which shall include a summary of the financial position of the Fund for the preceding
month and not later than thirty working days after the end of each quarter of the fiscal year,
submit to the Minister quarterly reports on the Fund for the preceding quarter.

Principle 12 Description:
12. The SWF’s operations and financial statements should be audited annually in accordance with
recognized international or national auditing standards in a consistent manner.

 Principle 12 Implementation Trinidad and Tobago:

The HSF’s financial statements are audited annually by the Auditor-General of Trinidad and
Tobago.

 Principle 12 Implementation Guyana:

The internal audit department of the Bank shall undertake an internal audit of the accounts,
records and other documents relating to the Fund at least annually. An external audit of the
accounts, records and other documents relating to the Fund shall be undertaken annually by the
Auditor General who may engage an internationality recognised auditing firm to assist in the
discharge of this external audit function.
Principle 13 Description:
13. Professional and ethical standards should be clearly defined and made known to the
members of the SWF’s governing body(ies), management, and staff.

 Principle 13 Implementation Trinidad and Tobago:

Professional and ethical standards of conduct for employees of the Central Bank, which has
responsibility for the day to day management of the Fund, are formally defined in the Bank’s
internal policies.

 Principle 13 Implementation Guyana:

Professional and ethical standards of conduct for employees of the Bank of Guyana, which has
responsibility for the day to day management of the Fund, are formally defined in the Bank’s
internal policies. The Public Accounts Committee shall determine a code of conduct to govern
the members of the Public Accountability and Oversight Committee and shall publish the code
on the website of the Parliament. The Minister shall determine a code of conduct to govern the
members of the Investment and the Macroeconomic Committee established under the NRF Act.
Principle 14 Description:
14. Dealing with third parties for the purpose of the SWF’s operational management should be
based on economic and financial grounds, and follow clear rules and procedures.

 Principle 14 Implementation Trinidad and Tobago:

Third party arrangements are generally contracted by the Central Bank and as such are subject
to the Bank’s procurement rules.

 Principle 14 Implementation Guyana:

Third party arrangements are generally contracted by the Central Bank and as such are subject
to the Bank’s competitive and open procurement process and rules.

Principle 15 Description:
15. SWF operations and activities in host countries should be conducted in compliance with all
applicable regulatory and disclosure requirements of the countries in which they operate.
  Principle 15 Implementation Trinidad and Tobago:
The HSF through its external manager programme invests in countries outside of Trinidad and
Tobago, some of which include the United States, Europe and Japan. The agreements between
external asset managers and the HSF place a requirement on the managers to comply will all legal
and regulatory requirements applicable to the conduct of business on behalf of the HSF.

 Principle 15 Implementation Guyana:

The Bank of Guyana can itself or hire a third party to handle the Investments of the Fund abroad.
The agreements between external asset managers and the NRF place a requirement on the
managers to comply will all legal and regulatory requirements applicable to the conduct of
business on behalf of the NRF.
Principle 16 Description:
16. The governance framework and objectives, as well as the manner in which the SWF’s
management is operationally independent from the owner, should be publicly disclosed.

 Principle 16 Implementation Trinidad and Tobago:

The governance framework and objectives of the HSF are documented in the enabling legislation.
The operational independence of the management of the Fund by the Central Bank is
documented in the Instrument of Delegation. Both documents are publicly available.

 Principle 16 Implementation Guyana:

The governance framework and objectives of the NRF are documented in the enabling legislation
NRF Act. The operational independence of the management of the Fund by the Bank of Guyana
is documented within the Act which is publicly.
Principle 17 Description:
17. Relevant financial information regarding the SWF should be publicly disclosed to demonstrate
its economic and financial orientation, so as to contribute to stability in international financial
markets and enhance trust in recipient countries.

 Principle 17 Implementation Trinidad and Tobago:

The overall size of the HSF, its absolute and relative returns and the asset class mix are disclosed
via publicly available quarterly reports. The Fund’s annual reports which are also made public,
contain further information about the accounting of the HSF.

 Principle 17 Implementation Guyana:

The Minister shall publish on the website of the Ministry and generally make available to the
public, Annual Reports, Financial Statements, Operational Agreements and Investment
Mandates in accordance with the NRF Act.
Pillar Three (3)
Investment and Risk Management Framework
Principle 18 Description:
18. The SWF’s investment policy should be clear and consistent with its defined objectives, risk
tolerance, and investment strategy, as set by the owner or the governing body(ies), and be based
on sound portfolio management principles.
18.1. The investment policy should guide the SWF’s financial risk exposures and the possible use
of leverage.
18.2. The investment policy should address the extent to which internal and/or external
investment managers are used, the range of their activities and authority, and the process by
which they are selected and their performance monitored.
18.3. A description of the investment policy of the SWF should be publicly disclosed.

 Principle 18 Implementation Trinidad and Tobago:

The Investment Policy of the HSF is clear and consistent with defined performance objectives,
risk tolerance, and asset mix consistent with its investment strategy. It is also based on sound
portfolio management principles and has been approved by the Board of Governors of the HSF.
While the overall investment objective of the Fund is publicly stated, the investment policy of the
HSF is not publicly disclosed.

 Principle 18 Implementation Guyana:

The Minister along with the advice Investment Committee and the help of the Senior Investment
Adviser and Analyst will prepare the Investment Mandate based on the Objectives of the Act.
The Bank of Guyana shall establish risk management arrangements and all necessary internal
management systems for the operational management of the Fund.

Principle 19 Description:
19. The SWF’s investment decisions should aim to maximize risk-adjusted financial returns in a
manner consistent with its investment policy, and based on economic and financial grounds.
19.1. If investment decisions are subject to other than economic and financial considerations,
these should be clearly set out in the investment policy and be publicly disclosed.
19.2. The management of an SWF’s assets should be consistent with what is generally accepted
as sound asset management principles.
  Principle 19 Implementation Trinidad and Tobago:
The investment guidelines of the HSF stipulate the return objective over a specific period. A risk
budget is included in the guidelines, which speaks to targeted tracking errors for each asset class
mandate. Investment decisions are based solely on economic and financial grounds and on a day
to day basis are made by external investment managers. These managers are subject to
regulatory scrutiny in the markets in which they operate and as such employ sound asset
management principles.

 Principle 19 Implementation Guyana:

The investment guidelines of the NRF stipulate the return objective over a specific period. A risk
budget is included in the guidelines, which speaks to targeted tracking errors for each asset class
mandate.

Principle 20 Description:
20. The SWF should not seek or take advantage of privileged information or inappropriate
influence by the broader government in competing with private entities.

 Principle 20 Implementation Trinidad:

The Fund does not compete with local private entities as it invests strictly in the international
financial markets.

 Principle 20 Implementation Guyana:

The Fund will not compete with local private entities as it will be investing strictly in the
international financial markets.
Principle 21 Description:
21. SWFs view shareholder ownership rights as a fundamental element of their equity
investments’ value. If an SWF chooses to exercise its ownership rights, it should do so in a manner
that is consistent with its investment policy and protects the financial value of its investments.
The SWF should publicly disclose its general approach to voting securities of listed entities,
including the key factors guiding its exercise of ownership rights.

 Principle 21 Implementation Trinidad and Tobago:

The HSF’s policies prohibit the Fund having a material interest in any single legal entity. The HSF’s
policy for casting votes in ownership and/or proxy ballots is not publicly disclosed.

 Principle 21 Implementation Guyana:

Eligible equities which are any equities included in the MSCI World Index
Principle 22 Description:
22. The SWF should have a framework that identifies, assesses, and manages the risks of its
operations.
22.1. The risk management framework should include reliable information and timely reporting
systems, which should enable the adequate monitoring and management of relevant risks within
acceptable parameters and levels, control and incentive mechanisms, codes of conduct, business
continuity planning, and an independent audit function.
22.2. The general approach to the SWF’s risk management framework should be publicly
disclosed.

 Principle 22 Implementation Trinidad and Tobago:

The Central Bank of Trinidad and Tobago is responsible for the day to day risk management and
monitoring of the HSF portfolio. To execute this responsibility, the Bank receives an array of
reports from the external managers and the custodian of the HSF. The Bank also has in place a
sound governance structure that exercises oversight authority on the Bank’s execution of Agency
functions as Manager of the Heritage and Stabilisation Fund by:
I. reviewing performance, compliance and internal controls;
II. reviewing quarterly, annual, external manager appraisal and strategic asset
III. allocation reports prepared by the Bank in accordance with the Operational and
IV. Investment Policy of the HSF;
V. Ongoing availability to address any issues.
VI. Reports are also periodically delivered by the Bank to the Board of Governors of the HSF.
 Principle 22 Implementation Guyana:
The Bank of Guyana has the responsibility for the day to day management of the fund and all risk
undertaken. The Fund will have an Oversight Committee in place to ensure transparency and
accountability. The BOG will be responsible for all reports and agreement as it relates to the
management of the NRF.
Principle 23 Description:
23. The assets and investment performance (absolute and relative to benchmarks, if any) of the
SWF should be measured and reported to the owner according to clearly defined principles or
standards.

 Principle 23 Implementation Trinidad and Tobago:

Reports on the assets and investment performance of the Fund are provided on a regular basis
to the Board of Governors.
  Principle 23 Implementation Guyana
Reports on the assets and investment performance of the Fund will be provided on a regular
basis to the Minister of Finance.
Principle 24 Description:
24. A process of regular review of the implementation of the GAPP should be engaged in by or
on behalf of the SWF.

 Principle 23 Implementation Trinidad and Tobago:

The HSF has not been reviewed since it was enacted in Parliament in 2007.

 Principle 23 Implementation Guyana

No Specific Clause but the NRF Act can be amended by the Minister of Finance and Approved by
the National Assembly at any time with the best interest of the Economy.

References
IFSWF. 2017. "Santiago Principle Self-Assessment." International Forum of Sovereign Wealth Funds.
February 21. Accessed February 22, 2019. https://www.ifswf.org/assessment/tt.

IMF. 2018. Generally Accepted Principles and Practices for Sovereign Wealth Funds ("Santiago
Principles"). Macroeconomic Policy and Data Transparency , International Monetary Fund.

Truman, Edwin M. 2008. A Blueprint for Sovereign Wealth Fund Best Practices. Policy Brief , Peterson
Institute for International Economics.