The Malta Independent 17 October 2018, Wednesday

PD demonstrates 'lack of understanding' of how sovereign wealth funds are managed - NDSF

Friday, 20 July 2018, 12:06 Last update: about 4 months ago

The Board of Governors of the National Development and Social Fund said that the Partit Demokratiku demonstrated a basic lack of understanding of how sovereign wealth funds are managed.

It was replying to a statement “Lack of professionalism, accountability when governing IIP scheme’s finances” issued by the PD on 16 July.

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The NDSF said it is the government agency responsible for managing and administering seventy per cent of the contributions received from the Individual Investor Programme of the Republic of Malta set up by virtue of the Malta Citizenship Act Cap.188.

The founding regulations stipulate that the funds received shall be used in the public interest inter alia for the advancement of education, research, innovation, social purposes, justice and the rule of law, employment initiatives, the environment and public health, the NDSF said.

In order to achieve these objectives it is essential for the Fund to invest its surplus liquidity in return seeking assets to create a second source of income to the Fund to enable the Fund to grow and to perform those functions and duties required by the founding regulations. This is fundamental in the management and operation of sovereign wealth funds. The investment income received from investments is either reinvested or used to fund social and economic initiatives in respect of which there will be no direct financial return to the Fund but from which there is a “social or economic return.”

The Board of Governors said it is responsible for setting the Investment Strategy of the Fund. The Fund invests only in quality assets that can deliver sustainable real positive returns whilst at the same time preserving the value of the Fund over the long term. The same Investment Strategy requires the NDSF to follow best international practices and is guided by the Santiago Principles which are 24 guiding accepted principles and practices (GAAP) followed by other international sovereign wealth funds.

With regard to the allegation of lack of accountability and transparency on the part of the Fund, the Board of Governors would like to state that, it has appointed external auditors to audit the financial statements of the Fund, it has adopted stringent accounting and financial reporting standards by adopting the IFRS and it abides by international standards of investment and risk management.

The 2016 and 2017 audited financial statements of the NDSF were recently tabled in Parliament by the Minister for Finance as prescribed by law. Furthermore, on a very regular basis, the NDSF shares information on its activities with representatives of the International Monetary Fund, Eurostat and rating agencies.

In reply, Partit Demokratiku said that the founding regulations are not in question. PD parts ways fundamentally with the Board of Governors on their being reported as having stated that the funds received are being used in the public interest “inter alia for the advancement of education, research, innovation, social purposes, justice and the rule of law, employment initiatives, the environment and public health.”

The press release in question states that “It is still very unclear how the public is to benefit from these funds as no proper evidence-based strategies were issued.”

Furthermore, PD said it would be extremely grateful if the Board of Governors were to respond to the second point PD raised, inter alia: “2. The Board of Governance should publish an investment plan in advance – like any other reputable fund/financial institution does. This is the norm. Such decisions also call for the necessary checks and balances which should also be subject to parliamentary scrutiny. “

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