Abstract
SAMA is not a Sovereign Wealth Fund (SWF) but it shares some characteristics. Reserves adequacy is estimated using a customized formula which leads to a split into a conservative reserves portfolio and a more active investment portfolio using top-down asset allocation and combining in-house investment with wide use of external fund managers. SAMA manages foreign exchange reserves in one location with a small team of long-serving staff, employs passive and active investment strategies, and aims to preserve capital, maintain liquidity, and achieve an investment return compatible with its risk appetite and strategic benchmark. Additions to foreign reserves include emerging debt and equity. Real estate is not owned. SAMA’s Governor has final review of investment decisions. This experience can be contrasted with Norway’s SWF.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
European Commission. “Press Release Database-Mandelson speech at OECD Conference, March 28, 2008.” European Commission, http://europa.eu/rapid/press-release_SPEECH-08-155_en.htm?locale=en (Accessed on October 26, 2016). This was a typical comment from politicians in this period and formed the backdrop to the formation of the Santiago Group a few months later.
- 2.
International Working Group of Sovereign Wealth Funds, “Generally Accepted Principles and Practices.” IWG, http://www.iwg-swf.org/pubs/eng/santiagoprinciples.pdf (Accessed on October 26, 2016).
- 3.
It is worth recording the names of all the WB team members who were seconded to SAMA from 1975 to 1988. On the American side (White Weld then Merrill Lynch when they acquired White Weld) were David Mulford, team leader, subsequently replaced by Steve Wilberding. Other team members were David Reid Scott, Tom Berger, Sam Forester, Bob Smith, Brian McKinley, David McCutcheon, David Hubert, Tom Latta, Bill Franks and Greg Ambrosio. The Barings team was initially led by Leonard Ingrams and subsequently by Jeremy Fairbrother and Bill Black. Other team members were Tony Hawes, Jonny Minter, Michael Baring, Robert Rice, Ian Cooper, Leslie Myers, Richard Comben and Rory Macleod. When the WB contract expired in 1988, Bill Black was retained by SAMA on a direct hire basis until 1997.
- 4.
Ahmed Abdullatif in the 1970s was followed by Ahmed Al-Malik in the first half of the1980s. In 1985 Mohammed Omar Al-Khatib took over, followed in 1992 by Mohammed Al-Shumrani. He was succeeded by Khalid Al-Sweilem in 2004. Since 2012 the department has been run by Ayman Al-Sayari. Ayman is a member of SAMA’s Investment, Risk, Monetary Policy, Financial Stability and Senior Management Committees. He holds a BSc. in accounting from King Fahd University and an MBA in Finance & Investment from George Washington University. He is a CFA Charter Holder. He joined SAMA in 1999, and between 2003–07 worked at the International Finance Corporation in Washington DC. In 2007 he returned to SAMA as an adviser to the head of the Investment Department and subsequently as Director General of Investment and then Deputy Governor for Investment.
- 5.
SAA = Strategic Asset Allocation, i.e. target allocation depending on risk tolerance, time horizon and investment objectives (periodically rebalanced back to the original allocation when the portfolio deviates significantly). It is derived from a mean variance optimizer model taking into account asset price correlations, volatility, return expectations, maximum drawdown and an element of qualitative judgment.
TAA = Tactical Asset Allocation, i.e. a short-term tactical trading strategy to take advantage of market anomalies or opportunities
- 6.
Fahad Alhumaidah, ‘Asset-Liability Management for Reserves under Liquidity Constraints: The Case of Saudi Arabia,’ Procedia Economics and Finance vol 29 (2015). This is a good practical examination of the problems of liquidity and unpredictable outflows. Dr. Alhumaidah is an Adviser in the Investment Department at SAMA.
Sources
Alhumaidah, F, 2014. “Reserve Adequacy in an Asset-Liability Framework: The Case of Saudi Arabia,” Arabia Monitor no.30.
Alhumaidah, F, 2015. “Asset-Liability Management for Reserves under Liquidity Constraints: The Case of Saudi Arabia,” Procedia Economics and Finance vol 29.
Ang, A., Brandt, M. and Denison D.,2015. “Review of the Active Management of the Government Pension Fund Global”, Columbia University, online: https://www0.gsb.columbia.edu/faculty/aang/papers/AngBrandtDenison.pdf (Accessed October 26, 2016)
International Monetary Fund. 2007. Global Financial Stability Report. April 2007. Washington DC: IMF.
International Monetary Fund 2015. Assessing Reserves Adequacy-Specific Proposals. Policy Paper. April 2015. Washington DC: IMF.
European Commission. “Press Release Database-Mandelson speech at OECD Conference, March 28, 2008.” European Commission. http://europa.eu/rapid/press-release_SPEECH-08-155_en.htm?locale=en (Accessed on October 26, 2016)
International Working Group of Sovereign Wealth Funds. “Generally Accepted Principles and Practices.” IWG. http://www.iwg-swf.org/pubs/eng/santiagoprinciples.pdf (Accessed on October 26, 2016)
MeasuringWorth. Stock Markets Returns database. MeasuringWorth.com, http://www.measuringworth.com/DJIA_SP_NASDAQ/(Accessed October 25, 2016)
Norges Bank Investment Management. Information on the Norwegian fund (GPFG). NBIM. https://www.nbim.no/en/ (Accessed on October 26, 2016)
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2017 The Author(s)
About this chapter
Cite this chapter
Banafe, A., Macleod, R. (2017). Foreign Exchange Reserves Management – SAMA’s Experience. In: The Saudi Arabian Monetary Agency, 1952-2016. Financial Institutions, Reforms, and Policies in Muslim Countries. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-55218-7_9
Download citation
DOI: https://doi.org/10.1007/978-3-319-55218-7_9
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-319-55217-0
Online ISBN: 978-3-319-55218-7
eBook Packages: Economics and FinanceEconomics and Finance (R0)