Dubai – “ASWAQ”
Saudi Arabia plans to launch a new sovereign wealth fund to manage part of its oil wealth and diversify its investments. The authorities are already talking to investment banks and consultants to submit proposals for the project.
Saudi’s net foreign assets in November 2015 totalled US$628 billion, down from a record high of US$737 billion in August 2014. Equities are believed to account for only a small fraction of securities holdings, at approximately 20 per cent, and the bulk of assets are believed to be denominated in US dollars. The assets, some of which are managed by global fund firms, are mainly securities such as US Treasury bonds and deposits with banks abroad.
The current conservative, low-risk instruments have been yielding modest returns, especially with the low global interest rates in 2015. The government had been much criticized for not being proactive in seeking alternative ways to earn higher returns on the investments. Saudi billionaire Prince Al-Waleed bin Talal had, since 2014, urged the government to create a new fund to resolve this issue.
The Finance Minister Ibrahim Al-Assaf, at the time, insisted there was no need for a new fund. However, policy-making authority has been restructured since King Salman took the throne in January last year and created a powerful Council of Economic and Development Affairs chaired by his son, Prince Mohammed bin Salman.
With the advice of Western consulting firms, Prince Mohammed is pushing for a series of reforms in the era of cheap oil. Some of the steps include spending cuts, higher taxation and privatization. This plan for a new sovereign fund is part of this initiative which will change the way Saudi assets are being managed to earn higher returns.
According to reliable sources, sometime late last year the Saudi government had requested banks and consultants to come up with proposals on how to structure the new fund so as to maintain foreign reserves at a good level necessary to strengthen the financial position and support the riyal.
The fund was said to be more focused on investing in businesses outside the energy industry, such as industrials, chemicals, maritime and transportation. However, no final decisions had been made and several options were being considered. The size of the planned new fund had not been revealed either.
Under the new fund, the managers could maximize returns by investing directly in companies instead of going through foreign asset managers. The new fund would ideally be operational within 12 to 24 months, with an office in New York, according to some sources. However, the Saudi Arabian Monetary Agency (SAMA) could not be reached for comment.