Report: Saudi Arabia to set up $2trn megafund

By Imogene Wong

Added 5th April 2016

Investment through the new sovereign wealth fund will become the source of the Kingdom's revenue, not oil, according to an industry report.

Report: Saudi Arabia to set up $2trn megafund

The report was from a five-hour interview with deputy crown prince Mohammed bin Salman conducted by Bloomberg.

The planned Public Investment Fund will be more than double Norway's sovereign wealth fund, which is by far the world’s largest with roughly $825bn in assets, according to the Sovereign Wealth Fund Institute.

The planned size roughly equals the assets under management by Fidelity Investments, but less than half of assets managed by BlackRock, the report noted.

The money will come from an initial public offering of less than 5% of Saudi Arabia’s state-owned oil firm Aramco, which could happen as early as next year.

“IPOing Aramco and transferring its shares to PIF will technically make investments the source of Saudi government revenue, not oil,” the prince was quoted as saying in the report.

The 30-year-old prince also hopes to fundamentally transform the oil giant into the biggest oil refiner on the globe and to cut government spending. 

The fund plans to increase the proportion of foreign investments to 50% of the fund by 2020 from 5% now, said Yasir Alrumayyan, secretary-general of the fund’s board and a former chief of Credit Agricole SA-backed Saudi Fransi Capital.

The government is already transferring some of its assets, companies and land to the fund, Alrumayyan said, with different projects in tourism and new industries that are untapped in Saudi Arabia.

The fund has been hiring specialists for markets, private equity and risk management, said Alrumayyan.

Plunging oil prices are diminishing government coffers, and Saudi Arabia has so far refused to cut production largely due to geopolitics, LGT Bank’s chief investment strategist Stephen Corry told FSA in an earlier interview.

“Saudi Arabia has excess reserves and assets but its fiscal deficit is 20% of GDP per annum and its finances will deteriorate sizably,” he said, adding that recently authorities announced a ban on the sale of Saudi riyal forwards because lower oil increased the pressure on the currency.

"In addition, the cost of Saudi credit default swaps, which are basically insurance against bankruptcy, have soared," Corry said.

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