An Analysis of Proxy Voting and Engagement 
Policies and Practices of the
Sovereign Wealth Funds
By Afshin Mehrpouya, Chaoni Huang, Timothy Barnett

IRRCi SWF Report October 2009

 EXECUTIVE SUMMARY

This report presents a study of the engagement and proxy voting practices of the ten largest Sovereign Wealth Funds, as well as general analysis of the level of transparency with which they operate. During the past two years, there has been an ongoing debate about the risks and opportunities related to the influence of the Sovereign Wealth Funds on the global capital markets. However, no systematic attempts have yet been made to evaluate the actual impact of the Sovereign Wealth Funds through analyzing their behavior and practices.In the scope of our study, the SWFs were analyzed based on six criteria: investment strategy, governance, engagement practices, capabilities, environmental, social and governance (ESG) practices, and disclosure. To capture the data on the six pillars of analysis over 37 data points were collected for each SWF. To expedite access to the local sources of information analysts speaking Chinese, Russian, French and English assisted in the data collection process.Disclosure by most SWFs is limited with regard to engagement policy and performance. Consequently to find information in this area, in addition to interviews and questionnaires used to collect information directly from the SWFs, many alternative sources of information outside of the SWFs were explored (See section 1.5). Some of the key conclusions of this study are: The current total size of the SWFs and the percentage invested in international equity is much less than the figures reported in the media; consequently estimates of their potential impact on the international capital markets are mostly exaggerated. As further explained in section 1.2, our estimate of the total international equity investments of the ten largest SWFs is about half of the figures generally reported in the media In our study, evidence was found supporting active investment management by most of the SWFs. However, few such funds disclose engagement policy or performance data for investments in which they take large stakes and engage with the investee companies. While engagement by long-term investors such as SWFs can be a source of governance and operational improvements for the companies, more disclosure in this area can help allay investment community concerns (See section 2.1). The label „SWF‟ does not capture the wide variety of missions, organizational structures and investment styles of such funds. While some funds were originally launched as the privatization management arms of their respective governments, others were founded by the central banks to invest part of their foreign reserve surpluses. Some aim to maintain the country‟s wealth for the next generations, while others serve as economic stabilization funds and still others aim at achieving social causes such as expanding the middle class population. This makes many generalizations about the funds‟ practices inaccurate and misleading. One year after the introduction and adoption of the Santiago Principles, while a few funds have achieved a comparatively high level of disclosure, the public disclosure levels of a number of SWFs have not yet met the Principles‟ standards. A few SWFs under study do not seem to have adopted any initiatives to improve their compliance with the Santiago Principles following its introduction.