Saudi wealth fund acts as great transformer

25 February 2021
The Public Investment Fund is the driving force behind the rapid development that is under way in Saudi Arabia

This package also includes:

> PIF throws down gauntlet for Saudi construction
> Riyadh plans $3bn Asir tourism project
> Localisation plan spotlights Saudi real estate

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Within 10 years, if all goes to plan, Saudi Arabia will be unrecognisable. The capital Riyadh will have doubled in size, becoming a city of 15 million people (see page 58); a $500bn futuristic city will have been built out of the desert in the north east at Neom; and these sprawling cities will be joined by a raft of specialised gigaprojects completed across the kingdom.

The driving force behind the planned transformation is the Public Investment Fund (PIF). The sovereign wealth fund was originally founded in 1971, and PIF was transferred from the Ministry of Finance to the Council of Economic & Development Affairs (Ceda) in 2015. Since then, it has been led by Prince Mohammed bin Salman al-Saud, Crown Prince, Deputy Prime Minister and chairman of Ceda.

PIF’s role in the Saudi economy was turbocharged in 2016 when it was announced that the government’s shareholding in national oil company Saudi Aramco would be transferred to PIF ahead of its initial public offering (IPO). The IPO was completed in late 2019 with 5 per cent of the company listed on the Saudi Stock Exchange (Tadawul).

Investment portfolio

At the same time, PIF rose to international prominence with the SoftBank Vision Fund. In 2016, it signed a binding memorandum of understanding that committed it to investing $45bn in the fund over the coming five years. In total, the fund raised $100bn in capital and its broad-ranging technology-focused portfolio includes companies such as ride hailing apps Uber and Didi, e-commerce marketplace Flipkart, accommodation provider Oyo and construction company Katerra.

PIF’s portfolio also includes a wide range of other investments that are split into six broad pools: an international diversified pool, international strategic investments, Saudi gigaprojects, Saudi real estate and infrastructure development, Saudi sector development and Saudi holding companies.

As Saudi Arabia’s economy struggled with the disruption caused by the Covid-19 pandemic in 2020, it was increasingly expected that PIF would focus its efforts in the future on driving the domestic economy.

Those expectations were confirmed in January this year when PIF launched its five-year strategy that outlined plans to grow its assets under management to $1.1tn by the end of 2025. 

It includes the Vision Realisation Programme (VRP) 2021-25, and builds on PIF’s success of the past four years, during which time it tripled assets under management to nearly $400bn at the end of 2020.

Future strategy

In addition to growing assets under management, Prince Mohammed said at the launch that the strategy will act as a roadmap for the fund in the coming five years as it helps to realise the kingdom’s Vision 2030.

The fund will do this by breaking with the strategies typically deployed by sovereign wealth funds in the region, which have traditionally involved stable long-term investments overseas.

Instead, PIF plans to be an active agent of change by spending a minimum of $40bn annually on domestic projects and investments, contributing $320bn to non-oil GDP cumulatively through its portfolio companies, and creating 1.8 million direct and indirect jobs by the end of 2025.

PIF will focus on 13 sectors as part of its core domestic strategy (see list, above).

Much will depend on the construction sector for the near-term future, as it will play a crucial role in making PIF one of the most valuable sovereign wealth funds in the world.

After a challenging five years that saw the collapse of two of its biggest contracting companies, the sector faces its most important decade on record, with PIF saying it plans to spend SR3tn ($800bn) on projects over the next decade. The projects will fall into two broad categories. 

When it comes to population growth in the kingdom, Saudi Arabia is focused on “two main cities, Riyadh and Neom”, said Prince Mohammed. 

“In the rest of the cities, we focus on improving services, the quality of life, seizing the opportunities in tourism, natural resources and other opportunities,” he added. 

New assets

This spending will create new assets for PIF. Speaking with former Italian prime minister and senator for Florence, Matteo Renzi, at the recent Future Investment Initiative, Prince Mohammed gave a detailed answer to the question on everyone’s minds: exactly how will the value of assets be increased from SR1.5tn to SR4tn?

“Quite simply, there are a number of sources,” Prince Mohammed said. “First, there are a lot of assets managed by PIF [that are] valued today at zero. These assets include the lands of Neom, the size of Belgium, with a book value of zero at PIF.

“The land of the Amaala project, also equal to the size of Belgium, has a book value of zero. The land of the Red Sea Project, also equal to the size of Belgium, has a book value of almost zero. The land of the Qiddiya project in Riyadh, equal to half the size of Bahrain, has a book value of zero,” he continued.

“There are tens of real estate assets that have a book value of zero at PIF. Once investments are injected there, this will reflect on the value of the asset itself, increasing it to over SR1.5tn.

“These assets exist and are owned by PIF. So, this is the first source.”

The crown prince then went on to outline that funds from future Saudi Aramco IPOs, privatisation projects, and the natural growth of PIF profits and their reinvestments will also contribute to PIF reaching its targets.

Longer term, Prince Mohammed has said that PIF will invest SR2tn in new projects (see page 18) from 2026 to 2030, taking the total value of investments planned for the decade to SR3tn.

Localisation drive

To support the kingdom’s local economy further, the domestic supply chain will account for more than half of the content in PIF projects. 

“We aim to increase local content in PIF projects and its portfolio companies to 60 per cent in the coming five years,” Prince Mohammed said at the strategy launch.

The project push has already started. On 10 January, Prince Mohammed announced the launch of The Line as part of the $500bn Neom scheme. Construction work is due to commence in the first quarter of this year. Once completed, The Line project is expected to house 1 million people.

Other signs of upcoming project activity have followed. In February, Prince Mohammed launched the concept design for the Coral Bloom project, to be developed on Shurayrah Island, which forms part of the Red Sea Project on the west coast of the kingdom.

These projects, like all construction schemes, come with risks that sovereign wealth funds have traditionally shied away from. 

For PIF, its mandate to drive national economic transformation and achieve positive and sustainable change in the kingdom means the projects are well worth the risk. The prize is not only $1tn-worth of assets under management, it is a Saudi economy that has been transformed for the future.

Timeline of PIF’s projects and investment

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10 key Public Investment Fund projects
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1. Neom
The $500bn development is Saudi Arabia’s most ambitious project

2. The Red Sea Development Company
Construction work on the Red Sea Project is advancing

3. Qiddiya Investment Company
Work on the entertainment city is due to complete in 2030

4. Amaala
The luxury Red Sea tourist resort is being developed across three integrated sites

5. KAFD Development & Management Company
New elements are planned for King Abdullah Financial District

6. Roshn
Developer is working on nine residential community schemes 

7. Rua al-Madinah Holding Company
Projects planned to increase Medina’s capacity for pilgrims

8. Saudi Entertainment Venture (Seven)
Seven’s first entertainment destination launched in 2019

9. New Jeddah Downtown
Phase one is expected to be completed next year

10. Soudah Development Company
$3bn luxury tourism destination planned for southwest mountainous Asir region 

MEED's March 2021 Saudi Arabia special report includes:

Saudi Arabia plans for debt-driven growth
> Money centre stage in Saudi Arabia’s foreign policy
Saudi banks take stock amid tumultuous conditions
Aramco poised to advance key upstream plans
Tighter spending slows Saudi downstream
Saudi electricity reforms set to show results
Privatisation and PPPs dominate Saudi water
Riyadh readies for urbanisation drive
Saudi PPP projects progress in 2021

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