Saudi Arabia’s Public Investment Fund ends the era of easy money

Over the past decade, Saudi Arabia has attracted dealmakers, bankers and asset managers seeking capital, with the sovereign wealth fund (PIF) embarking on a multibillion-dollar global spending spree.

But as the kingdom reassesses its priorities and the $925 billion fund shifts its focus to massive domestic commitments, the era of Saudi Arabia as a source of easy money is coming to an end, the Financial Times reported.

“It’s over. People are realizing it,” said a senior investment banker in Dubai. Fund managers, bankers and companies that have sought to raise capital in the kingdom are already feeling the effects of the shift.

Additional conditions

Investment managers say Saudi officials have set a number of additional conditions for injecting funds, often demanding local staff and using at least some of the money to invest in local companies and projects.

Others have been told that Riyadh wants to see reinvestment in the kingdom before committing to new funding, bankers said.

BlackRock, a US asset manager, has secured $5bn from the Public Investment Fund to set up a new investment company in Riyadh, which it announced in April, but is primarily committed to developing the kingdom’s capital markets.

The Public Investment Fund said in a statement to the British newspaper that it has “robust investment procedures” that allow it to “select the most appropriate partners and advisors for each mandate we pursue”.

“Investments made by the Public Investment Fund are reviewed by multiple committees and focus on their key sectors, in line with the mandate and strategy of the fund,” he added.

Bankers say companies are no longer turning to Riyadh for cash as often as they once did.

“Client interest has declined significantly, partly because we are vetting [investment decisions] very carefully, and there has not been a huge amount of success from these efforts and pitches,” the newspaper quoted the Dubai-based banker, who was not named, as saying. “People [seeking funding] realise that it doesn’t work just by showing up and signing cheques.”

The newspaper said that what is happening is a clear contrast to the early years of the dramatic transformation of the Public Investment Fund from a dormant state-owned holding company with assets of about $150 billion in 2015 to one of the most active and ambitious sovereign funds in the world.

Transformation

Saudi Crown Prince Mohammed bin Salman took over as chairman of the fund in 2015, giving him the task of steering Riyadh’s trillion-dollar plans to diversify the economy.

The fund sought to rapidly increase its investments in foreign assets from almost zero to its target of 24% of its portfolio, and made a splash with a series of high-profile deals, including pumping $45 billion into SoftBank’s Vision Fund in 2016 and $20 billion into Blackstone’s infrastructure fund the following year.

In the years since, the fund has poured money into a variety of sectors, from electric carmaker Lucid to its controversial LIV Golf project, to cruise ships, mining, sports assets and gaming companies.

It has also poured tens of billions into U.S. and European stock markets, as well as $2 billion into a private investment vehicle set up by Jared Kushner.

The fund’s surge has coincided with tightening elsewhere in the world, making Saudi Arabia and other oil-rich Gulf states prime sources of funding.

That sentiment has grown after the war in Ukraine sent energy prices to multi-year highs, fueling a boom in the Gulf and helping Saudi Arabia post a budget surplus in 2022, its first in nearly a decade.

The fund has rapidly increased its foreign investments from almost nothing to its target of 24% of its portfolio, making waves with a series of high-profile deals, including a $45 billion injection into SoftBank’s Vision Fund in 2016 and a $20 billion investment into Blackstone’s infrastructure fund the following year.

In the years since, the fund has poured money into a variety of sectors from electric carmaker Lucid to its controversial LIV Golf project, cruise ship companies, mining, sports assets and gaming companies.

It has also poured tens of billions into U.S. and European stock markets, as well as $2 billion into a private investment vehicle set up by Jared Kushner.

The fund’s surge has coincided with tightening in other parts of the world, making Saudi Arabia and other oil-rich Gulf states major sources of funding.

That sentiment has grown after the war in Ukraine sent energy prices to multi-year highs, fueling a boom in the Gulf and helping Saudi Arabia post a budget surplus in 2022, its first in nearly a decade.

Prince Mohammed has been focused on building infrastructure, a U.S.-based asset manager said.

“Saudi Arabia has pivoted purposefully to domestic growth projects. They have a bold ambition for what they want to become,” he said.

Domestic spending

“The flip side is that the Saudis are tired of being treated as a cash cow and are very suspicious of money-suckers,” another London-based banker told the Financial Times. “They want people to put their feet up in the game.”

The fund’s spending continues at home, with the fund aiming to invest at least $40 billion a year in the kingdom and overseeing a range of mega-projects, while developing new sectors including tourism, sports, mining and manufacturing.

Riyadh also has to prepare to host a series of international events, including the Asian Cup in 2027, the Asian Winter Games in 2029 and Expo 2030, and is the sole bidder to host the 2034 World Cup. The bankers added that PIF affiliates, including new airline Riyadh Air, gaming company Safi and mining firm Maaden, are doing most of the investing themselves as they pursue their own goals.

“There’s a lot of activity in PIF portfolio companies, not at the PIF level,” said the Dubai-based banker.

He added that bankers' "portfolios" will shift more from investment deals to financing as the government and the Public Investment Fund raise debt, with Riyadh already raising about $37 billion this year.