Saudis to launch $5.3bn sovereign fund

Saudis to launch $5.3bn sovereign fund

By Andrew England, Middle East Correspondent

Published: April 28 2008 22:02 | Last updated: April 28 2008 22:02

Saudi Arabia’s Public Investment Fund is in the “final stages” of launching the kingdom’s first sovereign wealth fund. But its early financial commitment will disappoint those hoping for another megafund.

Mansour Al-Maiman, secretary- general of the internally focused PIF, said an investment company wholly owned by PIF would be set up with initial capital of SR20bn ($5.3bn).

The move represents Riyadh’s first tentative foray into this class of state-owned investment tool and follows months of debate at the highest level.

Some bankers outside Saudi Arabia had expected a far larger sum. Kuwait’s sovereign fund is estimated at $200bn, Qatar’s $60bn, and the Abu Dhabi Investment Authority’s at $500bn to $850bn.

Mr Maiman added: “This does not preclude increasing the size of its capital . . . or otherwise broadening the size of assets under its management in the future as and when appropriate.”

Saudi Arabia is the Gulf’s largest economy and its declared official foreign assets have soared to more than $330bn, driven by oil.

Mr Maiman said that Riyadh was in the final stages of approving the formation of the investment company, which would be a “portfolio investor focusing on maximising long-term rates of return”.

The kingdom has invested conservatively, with an eye on liquidity to help it through downturns in oil price cycles.

About 85 per cent of foreign exchange reserves are invested in dollar-dominated fixed-income securities.

“The proposed investment company’s strategy...would, on a general and basic level, be similar to that of a number of existing portfolio investors – for example Norway’s GPF [Government Pension Fund] or Singapore’s GIC [Government of Singapore Investment Corporation] – while taking into account the specific requirements of Saudi Arabia,” Mr Maiman said.

Analysts said the relatively small size of the sovereign fund’s initial capital reflected Riyadh’s conservatism but was also a result of the backlash sovereign wealth funds had generated as other Arab and Asian states used state investment vehicles to acquire assets in the west.

The PIF, which falls under the finance ministry, was set up in 1971 to invest and finance projects inside Saudi Arabia, while acting as “custodian” of the government’s stakes in bilateral and multilateral companies. It has equity stakes in 26 national companies, including a major shareholding of National Commercial Bank, the country’s largest. It had made loans equivalent to SR27bn to the end of 2007, Mr Maiman said.

He did not disclose the size of PIF’s total assets, but one analyst estimates them at more than $380bn.

Mr Maiman said that while PIF “may assist in managing the company in the early stages”, the new investment company would have its own independent management team and staff.