Saudis Plan Mother of All Sovereign Wealth Funds

The report in Financial Times that Saudi Arabia plans to launch a sovereign wealth fund is significant for several reasons. First, it marks a shift in the kingdom’s approach to investing, which heretofore had been conducted via the Saudi Arabia Monetary Authority or privately by members of the royal family. The new entity will be the largest sovereign wealth fund in the world and is expected to invest more aggressively than SAMA, which has focused primarily on conservative, liquid investments.

From the Financial Times:

Saudi Arabia plans to establish a sovereign wealth fund that is expected to dwarf Abu Dhabi’s $900bn and become the largest in the world…..

The effort is likely to be spearheaded by Saudi Arabia’s Public Investment Fund, which has a mandate to invest only internally. Previously, the Saudis’ oil wealth had gone partly to the kingdom’s central bank, the Saudi Arabian Monetary Authority, and partly into the coffers of the ruling family.

While the balance sheet of SAMA is public information, bankers say the figures capture only a small percentage of the total wealth of the country. The myriad investment vehicles of the various members of the royal family have never been transparent.

Until now, SAMA’s investment policy has been conservative and largely limited to investment in bonds, especially US Treasuries, and shares. That contrasts with the mandate of its peers in the Gulf, which is increasingly geared to higher returns for when oil runs out, by investing in alternative assets such as private equity and hedge funds.

That emphasis has lately yielded to a focus on buying major stakes in troubled financial firms on both sides of the Atlantic in the wake of the subprime mortgage meltdown.

In contrast to its neighbours, Saudi Arabia has expanded its spending and next year’s budget includes ambitious infrastructure projects. King Abdullah, Saudi Arabia’s ruler, is believed to be a key sponsor of the investment initiative.

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  1. NC Jim

    Is this a big deal? Have the Saudis changed the rules of the agreement whereby the US defends the royal family and in return receives plentiful/cheap oil the procedes from which are sterilized in passive US investments or Eurodollars?

    I think too little was made of the fatwa by Islamic clerics against the dollar peg. This was not a hate US action but a recognition of the damage peg driven inflation was doing to the Arab street. Clerics don’t set policy in a family dictatorship but the fatwa was widely read and ,if the street comes to believe Dollar peg = inflation = hardship and get mad, then even Kings listen.

    The Asia Times online reports (it has an anti-US bias) a major US defeat and Russian victory in the location and usage of new and existing pipelines from the ME and Caspian Sea. Russia and Iran are also moving closer together on energy (together they control 20% of global oil reserves and 50% of gas reserves) and security.

    You see none of this in the MSM but geo-politics seems to be moving against the US – perhaps significantly.

  2. Yves Smith

    nc jim,

    Agreed re the lack of comment in the US about how the rest of the world is aligning on various axes against us. I’ve seen some discussion of the Russia-Iran on other blogs, but never in the press.

    Thanks for the pointer re the Asia Times. I will try to have a look at it more often.

  3. NC Jim

    yves smith,

    The apparent biggest concern is a growing European energy dependence on Russia both for production and delivery which would lead to closer cooperation in other spheres at the expense of the US.

    It is unwise to bite the hand that feeds you.

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