The Generally Accepted Principles and Practices (GAPP) meaning was launched considering the major investment concerns of the regular investors regarding the inaccuracy and lack of transparency in the investment industry. Now, the Sovereign Wealth Funds have to comply with the set of guidelines to control risk and provide an unbiased and transparent Financial System. Let’s take a look at the reasons why Generally Accepted Principles and Practices (GAPP) were launched:
GAPP was launched after investors expressed their growing concern about Sovereign Wealth Funds in the year 2008. The main concern of global investors was governance, Accountability, and transparency. As a result, the IMF (International Monetary Fund) collaborated with IWG-SWF to implement a set of 14 principles that the Sovereign Wealth Funds are supposed to follow. Later, 24 principles were introduced and these were considered as the international standards that the SWFs had to comply with.
In other words, GAPP explains a set of guidelines that are specially designed for the Sovereign Wealth Funds. These standards were reviewed and accepted by 23 nations in 2008. These principles were established to reassure people and investors that SWF will follow proper international standards to bring stability in the global financial system. Sovereign Wealth Funds started to make all their investment according to the financial and economical conditions rather than fulfilling their political goals.
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These 24 principles mainly focus on the following three areas:
These standards are regulated by IFSWF (International Forum of Sovereign Wealth Funds). Each principle is used to determine compliance, investment, financial risk, and transparency in the structure of Sovereign Wealth Funds. These voluntary standards are endorsed by IWG. The main purpose of implementing these principles is to regulate the Sovereign Wealth Funds and to introduce accuracy and transparency in all operations. They also act as guidelines that help SWFs operate and invest. Not only do these principles satisfy the concerns of the investors, but they guide Sovereign Wealth Funds in all their investment and operational activities.
These principles make it mandatory for all SWFs to make investments considering the returns, volatility, and economic aspects. Now, these principles are to be followed by SWFs when Investing in international or domestic countries. Despite being endorsed by IWG, only some Sovereign Wealth Funds have embraced these principles. These standards can be a bit challenging, but achievable. Many are planning to implement these guidelines and work accordingly. New standards and regulations are expected to emerge in the future, mainly for new Sovereign Wealth Funds.