Sanabil al-Saudia

Ashby Monk

A new Saudi Arabian ‘state investment vehicle’ (i.e. sovereign wealth fund) will launch next week with an initial capitalization of $5.3 billion. The SWF, named Sanabil al-Saudia, will begin making investments in six months time. It will be a portfolio manager for the Public Investment Fund and will have a global mandate to invest in a broad range of asset classes.

The launch of this SWF comes on the heels of the unveiling of the Hassana Investment Company, another Saudi Arabian public invest vehicle, which will invest pension fund assets in global markets. Clearly, Saudi Arabia is looking to tap into the additional returns available in financial markets; if markets really have bottomed out, their timing couldn’t be better.

With respect to Sanabil al-Saudi, according to Secretary General of the PIF Mansour al-Maiman , external advisers will be making the investment decisions (if we are to believe press reports). This a smart way to proceed in the short-term:

First, the difficulty of setting up an effective investment vehicle should not be underestimated. The governance and competencies required necessitate outsourcing the investment function, at least in the short term.

Second, in this tumultuous market, it is better to have a scapegoat for any initial bad investments (see China Investment Corporation). By outsourcing investments, the SWF could simply replace the investors in case of poor performance, and the new SWF will retain domestic legitimacy. Conversely, if the fund started investing its own money from the outset, bad investments could result in a loss of mandate altogether.

Finally, investing internationally may spark some concern on the part of target countries; independent consultants making the investment decisions may alleviate any political concerns of recipient countries.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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