The International Monetary Fund (IMF) has identified the Nigeria Sovereign Investment Authority (NSIA) as a model for the legal design of sovereign wealth funds, urging countries to strengthen governance frameworks as public investment funds expand their mandates beyond fiscal stabilisation to infrastructure financing, industrial policy and economic development.

In a new report released on Tuesday, the IMF General Counsel and Director of its Legal Department, Yan Liu, said sovereign wealth funds, which now manage more than $16 trillion in public assets globally, have evolved far beyond the purposes for which many were originally established, making stronger legal and institutional safeguards increasingly necessary.

Liu cited the NSIA as an example of sound legal architecture, noting that its stabilisation fund, future generations fund and Nigeria infrastructure fund are legally ring-fenced under the NSIA Act of 2011, allowing each to pursue distinct objectives while maintaining governance clarity and operational independence.

According to the IMF, separating multiple objectives into distinct funds or legally segregated sub-funds is generally more effective than combining potentially conflicting mandates within a single investment pool. Liu warned that broad mandates unsupported by corresponding governance reforms could expose sovereign wealth funds to mismanagement, political interference and misuse of public resources.

The Fund noted that sovereign wealth funds have grown more than fivefold since 2008, when they collectively managed about $3 trillion, reflecting their expanding role in helping governments finance infrastructure, support industrial development and strengthen economic resilience amid rising geopolitical fragmentation.

However, the IMF cautioned that the growing responsibilities assigned to sovereign wealth funds also increase governance risks. It said poorly defined or overlapping mandates could weaken accountability and undermine performance, while weak oversight structures have historically created opportunities for misappropriation in some jurisdictions.

The Fund also warned against sovereign wealth funds operating as parallel fiscal authorities or financing government debt without clear legal safeguards, saying such practices could distort public finances and obscure debt positions.

The IMF further highlighted risks associated with cross-border partnerships involving sovereign wealth funds, noting that jointly financed projects can amplify financial exposure among participating investors.

It added that differing national priorities, particularly where one government prioritises employment creation while another seeks commercial returns, could complicate governance arrangements and weaken investor confidence.

To address these challenges, Liu argued that the legal structure of sovereign wealth funds should be determined by their underlying mandates. While stabilisation funds focused on short-term fiscal management may be adequately operated within central banks or finance ministries, long-term savings funds require stronger institutional frameworks, including independent boards, fiduciary responsibilities and robust internal controls.

Funds pursuing strategic domestic investments, the IMF added, increasingly resemble state-owned investment holding companies and should be governed accordingly.

In addition, the IMF said the Santiago Principles—the voluntary governance and transparency standards adopted by sovereign wealth funds in 2008 should be updated to reflect the changing nature of public investment funds.

The endorsement of the NSIA’s legal framework marks a notable shift from previous disagreements between the Fund and Nigeria’s sovereign wealth manager. In 2019, the NSIA challenged an IMF Fiscal Monitor assessment that ranked Nigeria’s sovereign wealth fund among the weakest globally, arguing that the methodology unfairly penalised funds investing in domestic infrastructure, including healthcare projects, rather than concentrating investments abroad.