What it means
Sovereign wealth funds invest resources owned by a state, and their objectives can include saving for future generations, stabilising government finances or managing wealth generated by resources or other public assets. That public ownership can create questions for both citizens and foreign markets.
People may ask who directs investments, what the fund is trying to achieve and whether investment choices reflect financial considerations or unrelated political objectives. The Santiago Principles were developed in 2008 to address those concerns through a common framework, covering legal arrangements, objectives, institutional roles, governance, investment policy and risk management.
Their voluntary nature matters. They are a set of practices to implement within a fund's legal and institutional setting, not a supranational law that automatically overrides domestic legislation or host-country requirements.
The framework calls for a clear legal basis and publicly disclosed objectives, because an investment team works more coherently when its mandate identifies why the fund exists and how it relates to the government's wider policy framework. Governance should distinguish ownership, oversight and day-to-day investment decisions.
Blurred responsibilities can lead to informal instructions, weak accountability or a board being unable to tell whether performance reflects the agreed mandate. The principles also address professional management and operational independence.
Independence does not mean the fund lacks an owner; it means the investment function should operate within clearly assigned responsibilities and controls. Investment policy should define permitted assets, risk tolerance and the approach to financial returns, and a policy statement becomes useful when it guides actual decisions and the fund can explain deviations from it.
Risk management should address the fund's material exposures and operating processes, and market movements, liquidity needs, concentration and operational failures can all matter, depending on the fund's purpose and portfolio. Transparency includes relevant reporting, while recognising legitimate confidentiality around individual transactions.
Saying everything is confidential prevents meaningful accountability, whereas publishing every live trading detail is not required to explain a mandate and governance structure. The framework includes regular review of implementation.
A self-assessment can identify gaps, but it should not be read as an external guarantee that every practice has been independently tested. For a business dealing with a sovereign investor, GAPP provides a vocabulary for due diligence, so ask about mandate, decision authority, reporting and risk controls rather than treat a statement of adherence as a complete answer to every concern.
In practice
Real-world examples.
Example
A savings fund publishes its long-term return objective and spending rules. Readers can assess investment decisions against that objective instead of guessing whether the portfolio is intended to support short-term government expenditure.
Example
A fund board approves risk limits while an investment team chooses individual securities within them. Clear delegation allows oversight without turning every trade into an informal political decision.
Example
A potential partner reads a fund's self-assessment and asks how the described governance works in practice. It distinguishes the fund's own assessment from an independent audit or a legally binding certification.
Formula
Calculation
There is no GAPP return formula or universal compliance score. An illustrative governance review can map each applicable principle to a policy, responsible owner, evidence and review date. If a fund reports twenty implemented practices and four gaps, the count is a tracking aid, not proof of equal significance: one missing delegation rule can matter more than several minor reporting details.Case study
Seen in the real world.
Fictional case study: Northbay Sovereign Fund sought an infrastructure investment with an overseas partner. The partner initially relied on the fund's statement that it followed the Santiago Principles and assumed all approval authority was clear. During due diligence, the fund found that its investment committee and board used overlapping approval thresholds.
A large transaction could receive inconsistent directions even though the published governance description sounded orderly. Northbay clarified the thresholds, documented escalation and updated its assessment. The partner gained a clearer view of who could commit the fund, illustrating that GAPP is useful when supported by actual governance evidence rather than used only as a reputation label.
Watch out
Common mistakes.
- Confusing GAPP with GAAP. The Santiago Principles address sovereign fund governance and practices, not a set of accounting standards.
- Treating voluntary adherence as a guarantee of returns or universal legal approval. Performance and host-country compliance require separate assessment.
- Assuming a self-assessment is an independent certification. Read who assessed implementation, what evidence supports it and what remains incomplete.
Questions
People also ask.
Are the Santiago Principles legally binding worldwide?
No. They are voluntary principles and practices. A fund must still comply with the laws and obligations that apply to its operations and investments.
Do they prohibit every non-financial objective?
Read the framework and the fund's mandate. It calls for clear objectives and disclosure of other considerations where relevant, rather than treating an undefined public purpose as a substitute for accountability.
Why would a company care about GAPP?
It helps structure questions about a sovereign investor's authority, mandate, reporting and risk management. Those answers can matter when negotiating a long-term partnership or investment.
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