The role of sovereign wealth funds in the global financial system has been one of the top items on the global agenda in the past 20 months.
 
Responding to a political backlash, funds formed the International Working Group of Sovereign Wealth Funds in May 2008. In the course of a few months, the working group hammered out as set of Generally Accepted Principles and Practices, known as the Santiago Principles, published in October 2008.
 
The Santiago Principles served as an attempt at a framework that properly reflected appropriate governance and accountability arrangements, as well as the conduct of investment practices by sovereign wealth funds on a prudent and sound basis.
 
However, it is now unclear for the outside observer how exactly the working group wants to advance its work. The current situation in global financial markets appears to have made moving forward with the Santiago Principles less urgent. The worsening turmoil has tempered the agitated debates about the role of funds in the global financial architecture.
 
But, given the future systemic relevance of sovereign wealth funds as an investor class, the group should continue rigorously the process that it has started.
 
The Santiago Principles might lose their rationale if they are not vigorously implemented. The individual aspects of the Principles need to be more carefully looked at.
 
The working group itself needs to be more transparent about its future work. An inadequate level of information about the groups governance structures, process management and long-term strategy exists.
 
And considerable tension between the voluntary implementation of the principles by individual funds and the interests of the group to maintain some collective approach to implementation persists.
 
There is still a certain degree of uncertainty in the public about factors other than financial or economic considerations driving investment behaviour of funds. The working group could be more proactive in exploring the reasoning of these motivations for driving investment decisions. It should also seek to reach beyond the investor community and immediate stakeholders in global financial markets. The criticism of funds in recipient economies has very much been driven by populist sentiment. So it would make sense for the working group to engage with a broader audience and build the political capital that it needs to keep markets open in the long run.
 
To be sure, the Santiago Principles represent a hugely innovative approach to global governance, contributing to a growing body of international codes that provides order to the world of international finance. And it is fairly rare in international affairs that within a relatively short period of time participants from East Asia, the Middle East, Europe and America come to an agreement on such a politically-charged issue. Also, individual funds are just in the process of establishing their operations, as the Santiago Principles rightly claim. They need more time to implement the principles.
 
However, the working groups work was designed to curb the political backlash that funds have faced in the past two years. Now, it needs to sustain the process that it has started. Otherwise it risks losing traction, not only among funds but also the global audience.