The Santiago Principles, designed to promote transparency and good governance among Sovereign Wealth Funds (SWFs), are facing their toughest test yet. Nowhere is this challenge more evident than in the Gulf, where state-backed investors are grappling with rising geopolitical tensions, tighter investment restrictions, and shifting global economic dynamics.
For decades, Gulf SWFs — such as the Abu Dhabi Investment Authority (ADIA), Saudi Arabia’s Public Investment Fund (PIF), and the Qatar Investment Authority (QIA) — have played a crucial role in global financial markets. These funds, managing assets totaling trillions of dollars, have traditionally been welcomed as stabilizing forces and reliable partners in international investment. However, growing protectionism and enhanced foreign investment screening in key markets like the United States and Europe could complicate their ability to deploy capital freely.
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Primarily commercial- and investment-led
Historically, the Santiago Principles aimed to reassure recipient countries that SWFs operate with commercial motives rather than political agendas. Gulf funds have largely adhered to these principles, emphasizing governance, independence, and long-term investment strategies. They have developed into highly professional and well-governed financial institutions. However, the evolving political climate is testing whether adherence to these voluntary guidelines is enough to secure continued access to Western economies.
In the wake of rising global tensions, particularly between the United States and China, regulatory scrutiny of state-backed investment has expanded. The increased use of national security reviews, foreign direct investment (FDI) restrictions, and financial sanctions has created new barriers for Gulf SWFs. In particular, strategic sectors such as technology, infrastructure, and energy — long favored by these funds —are now more tightly controlled, making it harder to execute major transactions without facing delays or rejections through new, or strengthened, foreign investment review regimes.
This new world has not yet forced Gulf SWFs to turn away from their global investment ambitions. The relative geopolitical neutrality of Arab Gulf countries leaves many markets open. Notwithstanding, some funds are placing greater emphasis on domestic investment, aligning with national development goals such as Saudi Arabia’s Vision 2030 and the UAE’s economic diversification plans. While these adjustments reduce reliance on other markets, they also highlight the risks of a fragmented global investment environment.
Another growing challenge is the impact of investment screening on co-investment strategies. Many Gulf SWFs prefer to partner with global institutional investors, sovereign peers, and private equity firms to spread risk and enhance deal-making opportunities. However, as regulatory scrutiny increases, associations with funds perceived as lacking strong governance or operating in politically sensitive jurisdictions could create additional barriers to investment. This underscores the need for Gulf SWFs to reinforce transparency, enhance disclosure practices, and actively engage with regulators to maintain market access.
Ensuring credibility and stability
Despite these headwinds, the Santiago Principles remain a valuable framework for ensuring credibility and stability. However, their continued effectiveness will depend on more than just voluntary compliance. Gulf SWFs must proactively demonstrate their commitment to financial independence and institutional integrity, adapting to a world where trust in state-backed capital is no longer a given and misinformation abounds.
Ultimately, the ability of Gulf sovereign wealth funds to navigate this new investment order will hinge on their willingness to evolve. By strengthening governance, enhancing transparency, and building strategic partnerships in receptive markets, they can continue to play a central role in global finance — even as the rules of engagement shift. The Santiago Principles, while facing their toughest test, still offer the best path forward in preserving trust and ensuring SWFs remain powerful yet responsible players in an uncertain economic landscape.
Professor Adam D. Dixon is Adam Smith Chair in Sustainable Capitalism at Adam Smith’s Panmure House owned by Edinburgh Business School at Heriot-Watt University.
