PIF: Crown Prince’s winning ace towards a post-oil future for Saudi Arabia

Saudi Arabia’s sovereign wealth fund, dubbed the Public Investment Fund (PIF) spearheads the kingdom’s economic transition from a dependence on oil to a more diversified base. One can describe it as the winning ace in the hands of the Saudi Crown Prince Mohammed bin Salman towards achieving Vision 2030 goals and leading the Kingdom of Saudi Arabia towards the post-oil future.

In 2015, the PIF was a sleepy holding company for government investments that hardly anyone outside the kingdom had heard of. However, under the chairmanship of Prince Mohammed, the PIF now has around $1 $1 trillion in assets under management, as it snaps up everything from soccer clubs to electric carmakers and bankrolls new cities in the desert.

It plays a key role in the prince’s vision to transform the kingdom’s economy, attract foreign investment, create a tourism industry, and attract international residents to live in new Saudi cities.

To realize these goals, the Crown Prince used funds from the majority state-owned oil company, Saudi Aramco, to build an erect economy through the PIF. The oil giant is one of the world’s largest companies.

Where does the PIF allocate investments?

PIF’s largest investments are domestic ones, the growing list includes the Saudi National Bank, Saudi Telecom Co. and national projects like Neom, a $500-billion city-state that would run entirely on renewable power and export green energy.

Nevertheless, the PIF foreign portfolio expands over several sectors, it includes around $45 billion to SoftBank Group Corp.’s technology-focused Vision Fund. The fund also has investments in electric carmaker Lucid Motors Inc. has soared in value to almost $40 billion.

It also has stakes in video game makers Activision Blizzard Inc. and Electronic Arts Inc. and the digital services and retail businesses of Indian billionaire Mukesh Ambani. In February, the government transferred an $80 billion stake in Saudi state oil giant Aramco to PIF to boost its assets as the fund prepared to tap the international bond market for the first time.

Goals of PIF

The huge sovereign wealth fund aims to project Saudi influence and diversify the economy, a goal laid out by Crown Prince Mohammed Bin Salman under the ambitious Saudi Vision 2030.

PIF’s job is to stimulate inward investment, develop new industries, bring the kingdom access to new technologies through its foreign investments and create jobs. It’s also helping to make Saudi Arabia more attractive to outsiders.

In a country largely closed off to foreign tourists, and with entertainment not allowed until a few years ago, PIF is investing in luxury resorts, cinemas and entertainment complexes to lure more visitors. It also does deals just to make money. When the coronavirus pandemic crashed markets in 2020, PIF invested $40 billion of currency reserves received from the central bank in a bet on a swift recovery. It sold most of those investments a few months later as stocks rebounded.

Green investments

Another unusual task that is taken on the PIF is to raise funds for environmentally friendly green projects in the Kingdom. Accordingly, the PIF will offer green bonds to support the Saudi eco-tourism strategy and renewable energy projects. Through Neom, it’s funding the world’s largest project to produce hydrogen fuel without creating any harmful emissions.

The sky is the limit for PIF

PIF has set the sky as the limit, as Crown Prince Mohammed aims to expand the PIF assets to reach $2 trillion by 2030, which would make it bigger than Norway’s sovereign fund, currently the world’s largest at about $1.4 trillion. PIF’s assets have almost quadrupled since 2015 to around $580 billion.

To achieve this goal, the government will divert any surpluses into the PIF, especially as the oil prices surge. The fund has also been a major recipient of undeveloped land that’s worth zero on paper. If it’s used for building, its value can soar.

PIF backbone of the Saudi economy

Saudi Crown Prince Mohammed bin Salman said in early 2020 that the Public Investment Fund will expand its assets under management by more than 100% to around 4 trillion riyals ($1.1 trillion).

PIF’s assets under management recorded around 1.5 trillion riyals by the end of 2020, the Crown Prince has revealed.

He added that over the past few years the Saudi sovereign wealth fund has achieved remarkable economic and investments milestones, highlighting that the PIF has doubled its assets.

The Crown Prince placed PIF governor as the chairman of Saudi Aramco in September 2019, ahead of the company’s IPO, which indicates how the prince values the fund and want to ensure that it can get all the necessary funding it needs, according to Jean-François Seznec, a senior fellow at the Atlantic Council, a Washington D.C., think tank.

Prince Mohammed bin Salman has said in January 2021 that future Saudi Aramco public offerings will also mean more funding would be directed to the sovereign wealth fund.

During the Future Investment Initiative conference, the Crown Prince said that Saudi Aramco will offer more stocks in the coming years, the prospects will be allocated to the sovereign fund and re-invested domestically and globally.

According to the US-Saudi Business Council “The PIF receives its funding through four major sources: capital injections from the government, assets transferred to it from the government, loans and debt instruments, and returns on its investments and holdings. Other potential sources of funding include the sale of companies in its portfolio to the private sector and direct listings/initial public offerings (IPOs) of PIF companies on Tadawul.”

The council said that analysts expect Saudi Arabia to be a regional IPO leader in 2021, with more than 15 potential offerings planned.

The sovereign wealth fund also receives funding from the Saudi Central Bank. In 2020, the central bank transferred around $40 billion to the fund.

According to Seznec Saudi Aramco remains one of the sovereign wealth fund top funders, as the fund sold assets to Aramco. The oil giant bought the fund’s 70% stake in Saudi Basic Industries Corporation in June 2020 worth about $70 billion.

PIF domestic investments add value to the Saudi economy 

In January 2021, the Saudi sovereign wealth fund launched the Jeddah-based Cruise Saudi Company, in a bid to establish a strong Saudi tourism industry.

The PIF also established the Soudah Development Company which plans to attract two million annual visitors to the Kingdom and create 8,000 jobs by 2030, in the company’s luxury eco-resort in the mountainous Asir region.

Not only tourism, but the PIF also invested in finance, renewable energy, and infrastructure, with a focus on digital-led projects.

Accordingly, the fund acquired a 50% stake in the e-commerce giant Noon, which launched in Saudi Arabia in 2017.

Concerning the energy and utility sectors, the Saudi sovereign wealth fund established Tarshid (National Energy Services Company), the National Water Company, as well as the New Solar Energy Plan 2030. It also raised its stake in ACWA Power for renewable energy from 33.35% to 50%.

The fund also entered into the mining sector, as it has a majority stake in the Saudi Arabian Mining Company (Ma’aden). In line with the Saudi 2030 Vision, the PIF launched the Saudi Investment Recycling Company (SIRC) aiming to recycle 85% of the kingdom’s industrial and hazardous waste by 2035.

SIRC aims to contribute $10 billion to the Saudi economy, attract $.16 billion of foreign investments, as well as create more than 23,000 new jobs.

The sovereign wealth fund plays an integral role in the Saudi defence industry as it owns the Saudi Arabian Military Industries (SAMI) and has added Saudi Information Technology Company (SITE, a cybersecurity firm) and The Helicopter Company (THC, a domestic helicopter manufacturer) to its defence/security holdings.