(Adds analyst comment)
By Angus McDowall and Yara Bayoumy
RIYADH/DUBAI, June 8 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
The country's central bank, the Saudi Arabian Monetary
Agency, has long 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.
If the Shura Council approves the proposal, that would not
automatically mean the legislation would be enacted. Sometimes
years have passed between the council debating a proposal and it
becoming law, although there has been a far swifter process in
The size of Saudi Arabia's foreign reserves suggests the new
sovereign wealth fund could become one of the largest in the
world, depending on the proportion of reserves it was allocated.
At present the biggest such fund is Norway's Government
Pension Fund with $878 billion, followed by the Abu Dhabi
Investment Authority with $773 billion, according to the
Sovereign Wealth Fund Institute, which studies the industry.
It is not clear how the proposal as it stands will change
the existing procedures under which Saudi reserves are managed
by the central bank, said John Sfakianakis, chief investment
strategist at MASIC, a Saudi investment company.
"They have to ask fundamental questions: who will manage it,
what will be the role of the central bank, and will the
investment profile change," he said.
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 Organisation 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.
($1 = 3.7505 Saudi Riyals)
(Additional reporting by David French; Editing by Andrew