Established in 1971 to provide financing for strategic projects, Saudi Arabia’s Public Investment Fund (PIF) has emerged over the past two years as the kingdom’s most important economic agency after national oil company Saudi Aramco.

It is the primary vehicle for delivering the diversification and job creation goals of the country’s Vision 2030 strategy. And, following recent changes in governance, it is under the control of Crown Prince Mohammad bin Salman.

PIF says that it has a portfolio of about $230bn of assets under management, which it is seeking to increase to about $400 billion by 2020, and to $2tn by 2030, making it the biggest sovereign wealth fund in the world.

It is the key vehicle for re-investing the proceeds from Saudi Arabia’s planned privatisations, including the sale in 2018 of up to a 5 per cent stake in Aramco, which Riyadh says could raise up to $100bn.

PIF has also emerged as the primary driver of a programme of strategic real estate developments across the kingdom, including the $500bn Neom project announced at the Future Investment Initiative (FII) in Riyadh on 24 October.

PIF plans to create 20,000 direct domestic jobs, and 256,000 construction jobs by 2020, increasing its contribution to Saudi Arabia’s GDP from 4.4 per cent to 6.3 per cent.

Turning point

A key turning point for the PIF came in 2014, when it was mandated to fund companies inside as well as outside the kingdom.

In March 2015, oversight of PIF was transferred from the Ministry of Finance to the Council of Economic and Development Affairs (CEDA) with a new board chaired by Mohammad bin Salman.

The fund has embarked on a restructuring programme that will increase staff levels from about 200 to over 1,000 staff reporting to Managing Director Yasir al-Rumayyan. The fund is hiring leading investment bankers as employees and advisers including, former Citigroup banker Michael Klein, who along with Evercore, is advising on strategy and the Aramco IPO.

Investment Strategy

The Public Investment Fund is seeking to increase its shareholder returns to about 4-5 per cent up from 3 per cent, through investments in six areas: Saudi equity holdings, sector development, real estate and infrastructure, mega projects, international strategic investments and diversified global assets.

Inside the kingdom, this includes the establishment of companies such as the Saudi Arabian Military Industries company and the Saudi Real Estate Refinancing Company.

PIF also is seeking international investment fund partnerships such as its recent agreements with the US’ Blackstone Group and and Japan’s SoftBank and is keen to make more ‘big ticket’ investments such as its recent $3.5bn investment in US ride services company Uber.

PIF’s sources of funding to include government capital, government asset transfers, loans and debt instruments and retained earnings from investments. It is seeking to increase it use of leveraged investments.

PIF Partnerships

Following its $3.5bn investment in US-based ride-hailing company Uber in 2016, the Public Investment Fund has committed $45bn to the $100bn Softbank Technology Fund, covering artificial intelligence, mobility and self-driving cars. The investments contrast with the fund’s historical preference for conservative, or low-risk, low-return assets. According to Ahmed al-Faifi, managing director of technology firm SAP in Saudi Arabia, Bahrain and Yemen, the investment is aligned with the kingdom’s drive to diversify. “Investing in high-risk, high return technology assets potentially offers direct benefits to PIF as well as indirect benefits to the Saudi economy, as it would allow them access to new technologies that can be utilised to productively transform traditional sectors,” says Al-Faifi.

“Investment in global companies that will potentially expand to the region can indirectly create jobs for Saudi Arabia and create wealth to improve local social mobility,” says Walid Hanna, founder and CEO of Dubai-based Middle East Venture Partners.

In May, PIF and US private equity firm Blackstone agreed to launch a $40bn infrastructure investment vehicle with an anchor $20 billion contribution by PIF.

The Qidiya Project

The Qiddiya project is among the most significant investment initiatives in the Kingdom’s Vision 2030. Located 40km outside Riyadh, Qiddiya’s purpose is to provide an entertainment destination for Saudis and it is set to be Saudi Arabia’s biggest cultural, sports and entertainment city. The project is divided into six zones, amusement parks, sports tracks, car and bike racing areas, snow and water parks, natural scenery, and cultural initiatives. Work on the project is due to start in 2018 and the doors are expected to open to the public in 2022.

Neom

With its $500bn price tag, it is hardly surprising that the Neom project made headlines around the world when it was unveiled on 24 October by Crown Prince Mohammed bin Salman at the Future Investment Initiative in Riyadh. The proposed new city state will cover 26,500 square kilometres and will straddle Jordan and Egypt and will seek to attract investments in nine different sectors including energy, water, biotech and robotics. The city will be powered by solar and wind energy. “We will build the city from scratch, it will be drone-friendly and a centre for the development of robotics,” said Mohammad bin Salman. “We want to create something different. Neom is a place for dreamers who want to create something new in the world, something extraordinary.” Klaus Kleinfeld, former head of aluminum giant Alcoa has been appointed CEO of Neom..

Space tourism

The Public Investment Fund has signed a ‘non-binding memorandum of understanding’ with the UK’s Virgin Group, to invest at least $1 billion in Virgin’s project to create the world’s first commercial space tourism programme. As part of the deal, Virgin could also help the Kingdom develop a space-themed leisure facility in one of the new resorts being planned in Saudi Arabia. The investment covers the manufacture and launch of space vehicles for paying private passengers from bases in the US. The agreement allows for an option for PIF to invest a further $480 million in space services. The deal will also aid the development of next-generation low-cost small satellite launch systems and commercial supersonic point-to-point travel capabilities; and includes the “possibility to develop a space-centric entertainment industry in Saudi Arabia.

Jeddah Downtown 

One of a series of megaprojects aimed at developing the kingdom’s Red Sea coast, the PIF’s $5bn Jeddah Downtown project aims to redevelop Jeddah’s waterfront corniche and create 36,000 new jobs in the city over the next 10 years. The project will include spaces for entertainment, shopping, and commercial activities, as well as 12,000 housing units to accommodate 58,000 new residents. Initial preparation work in Jeddah is currently underway, with construction due to start in 2019 and the first phase of the project anticipated to open in the final quarter of 2022. The project will take place across a 5m square metre development and will be divided into six zones: new homes, new museums, and cultural and social centres, areas for business and innovation, gardens, amusement parks and sports facilities, hotels and hospitality facilities, retail spaces, as well as coastal areas for seaside activities, and walking routes along the private boat and yacht pier.

Red Sea Project

The Red Sea project is the flagship development in Riyadh’s goal to develop its tourism sector to create investment opportunities and jobs for Saudi nationals. Developed in cooperation with leading hotel companies, the Red Sea Project will see the development of 50 natural island between the cities of Amlaj and Al-Jawh on Saudi Arabia’s west coast. Located near to protected nature reserves and inactive volcanoes in the Harat Alrahat area, the development area is also close to the ancient ruins of Madain Saleh. The construction work for the first phase is expected to start in the third quarter of 2019 and includes an airport, port, hotels, residential buildings, and other related infrastructure and facilities. The target completion date for the first phase is the fourth quarter of 2022.