Saudi Arabia plans to establish a sovereign wealth fund that may exceed $900 billion, which would likely be the largest in the world, the Financial Times reported on its Web site without naming sources.
The effort is likely to be spearheaded by Saudi Arabia's Public Investment Fund, which has a mandate to invest only internally, the FT said on Friday. Previously, the Saudis' oil wealth had gone partly to the kingdom's central bank, the Saudi Arabian Monetary Authority, and partly into the coffers of the ruling family.
The new fund will be a rival for other government-owned investment funds in the Middle East and Asia, which have been increasingly investing in Western companies, particularly financial institutions which incurred in losses stemming from a mortgage meltdown in the United States.
"This is what happens when we have massive accumulation of foreign exchange reserves," said Michael Woolfolk, a senior currency strategist at The Bank of New York Mellon, in New York. "These sovereign funds will change the landscape of global investment because they will target not only bonds, but also equity investments. And that's already starting."
Multibillion investments in U.S. companies by sovereign wealth funds in the past month have helped shore up investor confidence, which has been shaken by the spread of asset write-downs at lenders.
The Wall Street Journal reported on Friday that Merrill Lynchmay be close to receiving as much as $5 billion of capital from Singapore state investor Temasek Holdings, which boosted financial stocks.
On Wednesday, Morgan Stanleysaid it was receiving $5 billion from China after recording $9.4 billion of write-downs and Citigroup last month also agreed to sell up to a 4.9 percent stake to Abu Dhabi for $7.5 billion.