How the Giant Saudi Wealth Fund is building a post-oil future: QuickTake

1. What does PIF invest in?

Its biggest holdings are still in local companies such as the Saudi National Bank, Saudi Telecom Co. and national projects like Neom, a $500 billion city-state that would run entirely on renewable energy and export energy. ‘green energy. Since 2016, when it committed $45 billion to SoftBank Group Corp.’s technology-focused Vision Fund, PIF’s overseas interests have multiplied. A 2018 investment in electric car maker Lucid Motors Inc. soared in value to nearly $40 billion. He also has stakes in video game makers Activision Blizzard Inc. and Electronic Arts Inc. as well as the digital services and retail businesses of Indian billionaire Mukesh Ambani. In February, the government transferred an $80 billion stake in Saudi oil giant Aramco to PIF to boost its assets as the fund prepared to tap the international bond market for the first time.

2. What is the purpose of the fund?

Projecting Saudi influence and diversifying the economy, a goal set by the de facto ruler, Crown Prince Mohammed Bin Salman, under a plan known as Vision 2030. The PIF’s job is to boost the foreign investments, to develop new industries, to allow the kingdom to access new technologies thanks to its foreign investments and to create jobs. It also helps to make Saudi Arabia more attractive to foreigners. In a country largely closed to foreign tourists and where entertainment was taboo until a few years ago, PIF is investing in luxury resorts, cinemas and entertainment complexes to attract more visitors (and prevent Saudis from seeking pleasure abroad). He also does business just to make money. When the coronavirus pandemic sent markets tumbling in 2020, the PIF invested $40 billion in foreign exchange reserves received from the central bank in a bet on a quick recovery. He sold most of those investments a few months later as stocks rebounded.

3. Why does the PIF borrow money?

While a traditional sovereign wealth fund invests excess national wealth to generate profits in the future, the PIF was refocused as a global investor while the Saudi budget was in deficit. As a result, borrowing has always been part of the plan as it seeks to achieve its growth ambitions. It has already tapped global banks for multi-billion dollar loans. The next step is a green bond. While it may seem incongruous for a petrodollar-fueled fund to raise money from climate-conscious investors, the PIF has plenty of environmental projects to target. Saudi Arabia builds its tourism strategy around ecotourism, and the fund is the main financier of most of Saudi Arabia’s renewable energy projects. Thanks to Neom, it finances the largest project in the world aimed at producing hydrogen without creating harmful emissions.

4. What is the size of PIF?

Prince Mohammed is well known for setting ambitious goals and PIF is no exception. He wants it overseeing $2 trillion in assets by 2030, which would boost Norway’s sovereign wealth fund, currently the largest in the world at around $1.4 trillion. PIF’s assets have nearly quadrupled since 2015 to around $580 billion. The path to $2 trillion will involve more large asset transfers from the state. The government expects its first budget surplus in nearly a decade in 2022 and the finance ministry has said an oil windfall could go into the PIF. The fund has also been a major recipient of undeveloped land that is worthless on paper. If used for construction, its value can skyrocket.

5. Why did PIF buy a football club?

Football teams are often acquired by wealthy individuals as trophy assets and their volatile fortunes can discourage pension and wealth funds. PIF’s acquisition of struggling English Premier League club Newcastle United in 2021 was part of an effort to bolster Saudi Arabia’s soft power through investments in sports and esports. Critics of the kingdom saw the deal as “sportswashing” – an attempt to improve the nation’s image and distract from a poor human rights record. Saudi Arabia may be following the playbook of neighboring Abu Dhabi, whose Sheikh Mansour bin Zayed Al Nahyan bought another English club, Manchester City, in 2008 and used it as a platform to market the emirate and its state-owned enterprises around the world.

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