Saudi Arabia’s sovereign wealth fund key to diversification

A key institution in the enactment of Vision 2030, the Public Investment Fund (PIF) is one of the world’s largest sovereign wealth funds. The PIF became the fifth-largest sovereign wealth fund in the world in April 2022 with $620bn in terms of assets, following a $40bn contribution in February 2022 from a 4% share in Saudi Aramco, the Kingdom’s oil and gas producer.

Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud, as the PIF’s chair, aims to make the fund the world’s largest by 2030, when he expects its assets to total $2trn, according to international media. This ambition may soon be realised, given the accumulation of foreign and domestic assets the PIF has managed in recent years. These include NEOM, a $500bn city currently being constructed in the Kingdom’s north-west, and stakes in global ride-sharing app Uber, luxury car maker Aston Martin and English football club Newcastle United.

The PIF is positioning itself not only as a wealth fund but also as a key driver of Saudi Arabia’s structural reform programme. Combining political power with financing, the PIF has been establishing and investing in a range of private companies and initiatives within the Kingdom. In this way, it has been supporting and at times driving Vision 2030’s general strategy of diversification and job creation.

Targeting Transformation

The PIF was established in 1971 with the aim of using the Kingdom’s oil wealth to help establish a series of companies to help propel national growth. The fund managed the government’s investments in international capital markets and was generally a low-profile entity.

In 2015 the PIF was placed under the direction of Crown Prince Mohammed bin Salman and the newly-established Council of Economic and Development Affairs. The fund has since doubled in size thanks to central bank and share transfers.

Six investment portfolios have also been developed: domestic giga-projects; domestic real estate and infrastructure development; sector development; equity holdings; international strategic investments; and the international diversified pool.

The first of these includes projects with direct PIF leadership, such as NEOM, the Qiddiya entertainment city project, a tourism scheme known as The Red Sea Project and the Roshn home ownership scheme. The second and third portfolios involve PIF investment in 32 Saudi companies, from Yanbu Cement Company to national telecom provider stc, and eight MENA-based enterprises, such as Americana Group’s Kuwaiti Food and ASMA Capital Partners.

The PIF’s international portfolio stretches beyond MENA, including companies such as electric car maker Lucid Motors, investment management companies SoftBank Group and Blackstone, and real estate investor AccorInvest. Diversification means that these investments are in a variety of industries, from public to private, and with a range of liquidities.

Directing Diversity

Diversification is a key component of the PIF and Vision 2030, with the growth of a wide range of enterprises operating in multiple industries key to end the Kingdom’s dependency on oil and gas. The PIF is thus jump-starting sectors by using public resources to incentivise private sector growth in areas where there had been little before.

While some worry about the government crowding out private enterprises, the model has achieved notable success so far. For the giga-projects in particular, the private sector is unlikely to develop such ambitious, long-term schemes on its own, although such initiatives could bring considerable benefits across the economy – and wider Saudi society.

Qiddiya, for example, will see significant investment in infrastructure and real estate while providing the Kingdom with a 334-sq-km site for arts, culture, sport and wellness. The PIF has thus come a long way from managing equity portfolios to leading a major economic and social transformation of the Kingdom.