Saudi Arabia to discuss proposal for sovereign wealth fund

Other sovereign wealth funds in the Gulf have invested more actively in a wider range of assets

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Saudi Arabia’s Shura Council, an influential advisory body to the government, will discuss a proposal for the country to establish a sovereign wealth fund that would invest some of its vast oil earnings, local media reported.

The National Reserve Fund would “guarantee the financial stability of the kingdom” by investing its reserves, Saad Mareq, head of the council’s financial committee, was quoted as telling the pan-Arab Asharq al-Awsat daily on Saturday.

Details of its investment strategy were not given, but if the proposed Saudi fund is run like the sovereign wealth funds of other wealthy Gulf states such as Qatar and Abu Dhabi, it could mean a change in the way Saudi money flows through global markets.

The country’s central bank, the Saudi Arabian Monetary Agency, has traditionally managed the country’s investment of oil surpluses abroad, focusing on low-risk assets; it is believed to have placed over half of its foreign reserves, now equivalent to about $730 billion, in conservative U.S. dollar assets such as U.S. Treasury bonds and bank accounts.

Other sovereign wealth funds in the Gulf have invested more actively in a wider range of assets including real estate and stakes in top Western companies, which involve greater risks and higher potential returns.

Asharq al-Awsat said the proposed Saudi fund would start with capital of 30 percent of budget surpluses accumulated over past years. In 2013 alone, the government posted a budget surplus of 206 billion riyals ($55 billion).

The fund would have a president with the rank of minister, the newspaper added. The Shura Council will discuss a draft law for the National Reserve Fund on Monday and Tuesday, the official Saudi Press Agency reported.

In the past, the kingdom has invested much of its oil wealth on domestic initiatives through a number of different state bodies - among the most prominent are the Public Investment Fund and the General Organization for Social Insurance. Their projects include investments in local companies and providing funds for infrastructure development.

In 2009, an investment fund called Sanabil Al Saudia was set up with a mandate to invest in less conservative assets. It was granted 20 billion riyals of initial capital.

Last year, the International Monetary Fund told Saudi Arabia it was spending more than it should if it wanted to preserve oil wealth for future generations, and that its state budget could fall into deficit by 2016 if expenditure continued rising fast.

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