Saudi Arabia seeks proposals for new sovereign wealth fund

17 January 2016

Kingdom has asked investment banks and consultancies to submit proposals for setting up new fund as it aims to diversify investments

Riyadh has asked investment banks and consultancies to submit proposals for setting up a new sovereign wealth fund as the kingdom aims to diversify its investments.

The government late in 2015 sent out a request for proposal to banks and consultants without telling them the size of the planned new fund, according to news agency Reuters, which cited unidentified people familiar with the matter.

The new fund could change the way Saudi Arabia invests its oil fortunes and affect some of the world’s leading asset managers, particularly in the US, where the bulk of Saudi Arabia’s foreign assets are managed,

Saudi Arabia relies heavily on sale of oil for revenues. It is facing economic slowdown as prices of crude have lost about three quarters of their value since mid-2014. The government has resorted to issue local currency bonds and tapped into its foreign assets to compensate for shrinking oil income. The country’s net foreign assets dived more than $100bn in 15 months.

The planned would focus on investing in businesses outside the energy industry. A final decisions hasn’t been made and a range of options were being studied. Managers of the planned fund may be able to invest directly in companies rather than channelling investments through foreign asset managers. The new fund would ideally be up and running within 12-to-24 months, with an office in New York, sources told Reuters.

The Saudi Arabian Monetary Agency (SAMA) currently manages the vast bulk of investments. SAMA’s net foreign assets totalled $628bn in November, down from a record high of $737bn in August 2014. The assets are mainly securities such as US Treasury bonds and deposits with banks abroad. Equities are believed to account for only a small fraction of securities holdings.

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