Saudi Arabia plans to establish a sovereign wealth fund that is expected to dwarf Abu Dhabiâ??s $900bn and become the largest in the world.

The new fund will be a rival for other government-owned investment funds in the Middle East and Asia, which are playing an increasingly active role in channelling capital to western companies, particularly financial companies.

The effort is likely to be spearheaded by Saudi Arabiaâ??s Public Investment Fund, which has a mandate to invest only internally. Previously, the Saudisâ?? oil wealth had gone partly to the kingdomâ??s central bank, the Saudi Arabian Monetary Authority, and partly into the coffers of the ruling family.

While the balance sheet of SAMA is public information, bankers say the figures capture only a small percentage of the total wealth of the country. The myriad investment vehicles of the various members of the royal family have never been transparent.

Until now, SAMAâ??s investment policy has been conservative and largely limited to investment in bonds, especially US Treasuries, and shares. That contrasts with the mandate of its peers in the Gulf, which is increasingly geared to higher returns for when oil runs out, by investing in alternative assets such as private equity and hedge funds.