KUALA LUMPUR: Effective governance and transparency are essential for sovereign wealth funds (SWFs), as they play a critical role in fostering public trust, ensuring accountability, and implementing safeguards against malfeasance that could undermine long-term stability and legitimacy.
Asia School of Business director and senior lecturer Elsa Satkunasingam (pic) said clear governance processes help ensure that SWFs effectively fulfil their responsibility to manage national wealth for current and future generations.
“Public confidence hinges on the professionalism and independence of SWF management. Transparent and accountable governance structures are necessary to protect against financial mismanagement and political interference,” she told SunBiz.
She said SWFs manage over US$11 trillion in global assets.
Elsa said SWFs play a vital role in ensuring economic stability and wealth creation by making strategic investments that safeguard prosperity for current and future generations.
She pointed out that Malaysia’s Khazanah Nasional Bhd and Singapore’s Temasek Holdings Ltd balance investments for financial returns with contributions to socioeconomic development.
Both agencies operate across domestic and international markets to foster economic growth while maintaining independence, accountability, and adherence to their investment objectives.
Temasek was recently recognised by Global SWF for its high level of transparency.
Quoting the Global Sovereign Wealth Fund (Global SWF), Elsa said GIC Singapore received mid-range scores, while Khazanah showed marked improvement since 2021.
She said SWFs such as GIC, Khazanah, and Indonesia’s INA have demonstrated resilience but can improve in areas such as board selection disclosure, sustainability approaches, and crisis-prevention measures.
On challenges, Elsa said SWFs must balance domestic investments with international diversification.
She said diversification enhances portfolio returns and mitigates domestic risks, but prioritising socioeconomic development through domestic investment is also critical.
Commenting on strategies regional SWFs should adopt to align with global sustainability goals and address climate-related investment risks, Elsa said there is a natural alignment between SWFs and sustainability goals, especially climate-related risks.
She said SWFs are owned by governments, and initiatives such as the Sustainable Development Goals are aligned with the role of governments.
“Recognising that extreme weather events can disrupt economies, infrastructure, and social stability, most SWFs have integrated Environmental, Social, and Governance (ESG) factors into their investment strategies.
“Despite recent uncertainties – such as the exit of major investors from the Net Zero Asset Managers (NZAM) initiative – maintaining a steady commitment to ESG practices is crucial as climate-related events are expected to increase and adhering to its ESG strategies will SWFs’ investments over the long term,” Elsa said.
When asked how SWFs leverage emerging technologies like artificial intelligence (AI) and blockchain to enhance transparency and improve investment decision-making in 2025, Elsa pointed out that Norway’s SWF uses AI to deploy capital.
“As they are a near-indexed fund, AI helps determine the most efficient way to make these adjustments with the fewest trades, which reduces trading costs.
“Other SWFs have not disclosed these measures,“ Elsa said.
She said the International Forum of Sovereign Wealth Funds (IFSWF) held its recent gathering in November 2024, and the members agreed to use AI in their investment processes.
This will improve decision-making as AI enables investors to process large, less structured and complex datasets and provide insights that previously took much longer to process.
Further, this will also enable the SWFs to detect emerging trends quickly and increase transparency as conflicts of interest or ESG tracking in their investment portfolios can be identified.
Elsa also elaborated on strategies regional SWFs should adopt to align with global sustainability goals and address climate-related investment risks.
She said there is a natural alignment between SWFs and sustainability goals, especially climate-related risks.
“SWFs are owned by governments, and initiatives such as the Sustainable Development Goals are aligned with the role of governments.
“Recognising that extreme weather events can disrupt economies, infrastructure, and social stability, most SWFs have integrated Environmental, Social, and Governance (ESG) factors into their investment strategies.
“Despite recent uncertainties, such as the exit of major investors from the NZAM initiative, maintaining a steady commitment to ESG practices is crucial as climate-related events are expected to increase.”
