Auditing sovereign wealth funds: Qatar Investment Authority at the back of the class

Despite a lot of changes in Qatar in the last few years, the country's sovereign wealth fund, the Qatar Investment Authority (QIA), is still getting extremely bad marks from international auditors.

In the past few months, QIA officials announced fund managers are making big moves toward investing $35 billion in U.S. interests while opening an office in New York. The fund has hired top finance professionals from firms such as Citibank and Morgan Stanley. But none of that has, as yet, been enough to move the QIA from the bottom of the barrel in the eyes of organizations charged with monitoring sovereign wealth funds around the world.

The Generally Accepted Principles and Practices for sovereign wealth funds (SWFs), also called the “Santiago Principles,” are a set of guidelines and standards that these funds are supposed to abide by. A 2014 release from Geoeconomica shows roughly two dozen sovereign wealth funds from around the world with A’s, B’s and C’s in terms of letter grades for Santiago compliance. The Qatar Investment Authority is by itself in the “D” category.

Most of the demerits for the QIA and other Middle Eastern wealth funds seem to have to do with transparency and documentation, For example, the lack of a detailed annual report from the QIA is one of the black marks on its record. Auditors also look at how well risk management and other factors are disclosed.

Later in the report, Geoeconomica does group together four SWFs from the Middle East region and tags them as “lagging behind in public disclosure policies.” 

The report goes on to describe the fund practices this way:

“We know that none of the four funds maintain qualitatively robust public financial disclosure practices, such as publicly disclosing audited income statements or balance sheets, robust disclosure of funding and withdrawal arrangements, or disclosure of meaningful financial performance indicators - they also largely fail to provide robust and verifiable narratives of their governance arrangements based on relevant legislation, charters and other constitutive governance or management agreements - this prevents outside observers from coming to an informed conclusion about the operational independence of the fund’s management.”

David Roberts is part of the Defence Studies Department at King’s College, London. Robert cites recent improvements in the professionalism of the fund management as attempts by the Qatar government to reach some form of compliance.

“There's a lot of procedural stuff involved.” Roberts told the Gulf News Journal. “It's not as simple as: ‘get a head of compliance from Morgan Stanley and you’re done.’”

 Also, Roberts said, there are cultural differences to consider.

“It's a different kind of working culture (in Qatar) - it just takes a bit of time.” Roberts said.

While noting that Qatar is not technically a democracy, Robert also suggested that critics of the government should concede that public opinion does matter in the country.

“The Qatari people are an important constituency.” Roberts said. “The opinion of Qataris matters.”

Also, Robert said, Qatar’s fund managers have every incentive to get compliant, since leaders in the country want to promote Doha as a major global financial capital on par with Abu Dhabi or Hong Kong.

“They want to be seen as an international business hub … that's what they're about.” Roberts said.

With all of that in mind, there’s a firm basis to indicate that at some future point, the QIA will improve in terms of Santiago compliance. The question is when. For now, QIA fund managers still have to wear that letter of shame.