Understanding Generally Accepted Principles And Practices (GAPP): Definition, Objectives, and Global Impact

The generally accepted principles and practices (GAPP), also recognized as the Santiago principles, emerged from the collective efforts of the International Working Group of sovereign wealth funds (IWG) in October 2008. Comprising 23 countries with SWFs, the IWG aimed to alleviate concerns expressed by investors and regulators regarding insufficient transparency, independence, and governance within the industry. GAPP mandates that SWFs exhibit proper arrangement establishment, ensuring investments align with economic and financial considerations rather than political motives.

The guiding objectives for SWFs, defined as “special purpose investment funds or arrangements owned by the general government,” are as follows:

1. Maintaining financial system stability: SWFs are designed to contribute to the stability of the global financial system and facilitate the free flow of capital and investment.

2. Regulatory compliance: SWFs are required to comply with all relevant regulatory and disclosure requirements in the countries where they make investments.

3. Economic and financial basis for investments: SWFs must base their investment decisions on economic and financial risk and return-related considerations.

4. Transparent governance structure: SWFs should have in place a transparent and robust governance structure that incorporates operational controls, risk management, and accountability.

The 24 voluntary Santiago principles serve as a framework for implementing the guiding objectives in three key areas: legal, institutional, and investment and risk. The International Forum of sovereign wealth funds (IFSWF) is responsible for maintaining and promoting these principles. As of 2021, the IFSWF, with over 30 member SWFs globally, ensures voluntary endorsement and implementation of these principles in their governance and investment practices.

The Santiago principles were established in response to concerns from investors and regulators about insufficient transparency, independence, and governance within the sovereign wealth fund (SWF) industry. They aim to ensure responsible and economically sound practices.

SWFs contribute to stability by aligning their investments with economic and financial risk and return-related considerations. This approach helps maintain a stable global financial system and encourages the free flow of capital and investment.

The Santiago principles are maintained and promoted by the International Forum of sovereign wealth funds (IFSWF), a global organization representing over 30 SWFs. IFSWF members voluntarily endorse and implement these principles in their governance and investment practices.

The International Working Group of sovereign wealth funds (IWG) played a pivotal role in formulating GAPP. Comprising 23 countries with SWFs, the IWG addressed concerns about transparency, independence, and governance within the SWF industry.