Governance Is What Makes a Sovereign Wealth Fund Last.

Public funds rarely fail because their investment managers pick the wrong shares. They fail because their purpose drifts, because governments withdraw money outside the rules, and because citizens cannot see what is happening until it is too late.

The international record is clear. Funds with strong governance compound wealth across generations. Funds with weak governance become political piggy banks, and eventually lose public trust. If Australia is serious about converting resource wealth and productivity gains into lasting national capital, governance is not a detail to resolve later. It is the foundation.

At a glance

• A public fund’s long-term success depends more on governance than on investment skill.
• Five elements define strong governance: a clear mandate, separated roles, a withdrawal rule, independent assurance and plain-language reporting.
• The Santiago Principles, agreed internationally in 2008, provide a tested benchmark for sovereign wealth fund governance.
• Norway and Australia’s own Future Fund show what good practice looks like in different systems.
• Any new Australian fund should be legislated with governance safeguards from day one, including a published withdrawal rule and an annual report written for citizens.

Why governance matters more than returns

Over decades, a well-diversified fund will experience strong years and weak years. Markets will fall, sometimes sharply. Those are known risks and can be managed.

The risks that destroy funds are different:

• Mandate drift, where a fund is asked to serve new and conflicting purposes without clear rules.
• Political withdrawals, where governments draw on capital to cover budget shortfalls in an election year.
• Opaque reporting, where losses, fees and conflicts of interest are hidden from the public.
• Captured decisions, where investments are directed toward favoured projects rather than assessed on merit.

Each of these is a governance failure, not a market failure. Each is preventable.

The international benchmark: the Santiago Principles

In 2008, sovereign wealth funds from around the world, working with the International Monetary Fund, agreed 24 generally accepted principles and practices now known as the Santiago Principles. They cover the legal framework, governance structure, accountability, transparency and investment risk management of sovereign funds. Source: International Forum of Sovereign Wealth Funds

The principles are voluntary, but they represent the closest thing to a global standard. Any Australian national fund should be designed to meet them in full and to report publicly against them.

Five elements of strong fund governance

1. A clear, legislated mandate

The fund’s purpose should be set in legislation, not in a ministerial press release. A fund might pursue financial returns, domestic development, budget stability or citizen distributions. Those objectives can conflict. An investment with high community benefit may offer modest financial returns. A profitable overseas investment may create little Australian employment.

The mandate must explain how competing objectives are weighed, who has authority to decide, and what the fund must never be used for.

2. Separation of ownership and management

The strongest funds separate three roles.

Role	Responsibility	Norway	Australia’s Future Fund
Framework setter	Sets the legal purpose and rules	Parliament	Parliament, through the Future Fund Act
Owner	Sets the investment mandate and risk appetite	Ministry of Finance	Responsible ministers, through the investment mandate
Manager	Makes investment decisions at arm’s length	Norges Bank Investment Management	Board of Guardians and the Future Fund Management Agency

Sources: Norwegian Ministry of Finance and Department of Finance.

This separation means that politicians set direction but do not choose individual investments. It is the single most important protection against capture.

3. A published withdrawal rule

Norway’s fiscal rule guides spending toward the expected real return of the fund over time, about 3 per cent a year. It is not a guaranteed return or a rigid annual ceiling, and it allows flexibility in a crisis. Source: Norges Bank Investment Management

An Australian fund needs its own rule, tested against severe scenarios. It should specify how withdrawals respond to losses, which exceptional circumstances permit departures, and how any departure must be explained to Parliament.

4. Independent assurance

Independent audit by the Australian National Audit Office, periodic external reviews of investment performance and a standing parliamentary committee would provide continuous scrutiny. Assurance should cover not only financial accounts but also whether the fund is achieving its stated purpose.

5. Reporting a citizen can read

Most public fund reports are written for investment professionals. A national fund built on public wealth should also report to citizens in plain language. At a minimum, each annual report should show:

• opening and closing value;
• contributions and withdrawals;
• returns after fees and after inflation;
• performance against a stated benchmark;
• the largest risks and exposures;
• the total cost of running the fund.

One point deserves emphasis. A larger closing balance may simply reflect new contributions rather than good investing. Reporting must separate the two.

Technology can strengthen accountability, not replace it

Digital reporting can make fund records easier to inspect, and automated monitoring can flag unusual transactions, concentration risks or breaches of mandate earlier than manual review. Artificial intelligence will increasingly support this work.

None of it removes the need for reliable data, independent audit and accountable decision-makers. Technology makes good governance more efficient. It cannot make weak governance strong.

Governance is a continuous discipline

Establishing a fund is the beginning, not the end. A disciplined governance framework asks hard questions every few years:

• Would paying down debt have produced a stronger national position?
• Are fees and costs reasonable compared with similar funds?
• Did distributions achieve the outcomes they were meant to achieve?
• Is the portfolio amplifying risks the budget already faces, such as exposure to commodity prices?

Long-term thinking includes the willingness to correct weaknesses when the evidence changes.

What leaders should do next

• Any proposal for a new Australian fund should be accompanied by draft governance legislation, not just a target balance.
• Parliament should require existing public funds to report annually against the Santiago Principles in a single, consolidated document.
• Treasury should develop and publish a stress-tested withdrawal rule before any new fund receives its first contribution.

The full series

• What Norway’s sovereign wealth fund teaches Australia
• Australia already has a sovereign wealth fund. It needs a clearer job
• Turning Australia’s mineral wealth into national wealth
• Preparing Australians for the artificial intelligence transition

About the author

Dainu Devis is an Australian emerging technology CEO, technologist and business and economic strategist. As Chief Executive Officer of Sharktech Global and Divine Lab Worx, he brings a decade of international business consulting and political strategy advisory experience to building technology businesses. His strength is concurrent product and process design, bringing the product, delivery processes and route to market together from the start.