Saudi fund’s prudence pivot is only half complete
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Karen Kwok
LONDON, Aug 20 (Reuters Breakingviews) -Among the world’s major sovereign wealth vehicles, Saudi Arabia’s Public Investment Fund (PIF) has always had an unusually local flavour. That idiosyncrasy is growing. Spending more money in the kingdom makes sense given the PIF’s goal of helping to diversify the country away from oil. But many of the local projects seem speculative.
The fund’s 2023 annual report, released on Monday, showed that assets under management rose almost a third last year to $766 billion, with 76% of the total haul invested at home compared with 68% in 2022 and 51% in 2021. The local proportion is probably even higher now, after Saudi transferred 8% of state oil giant Aramco to the PIF earlier this year, helping to swell the fund’s assets to $925 billion.
Boosting the share of money spent at home seems reasonable, since one of the vehicle’s goals is to help forge a future for the country beyond oil – a key plank of Crown Prince Mohammed bin Salman’s (MbS) agenda. It’s hard to see how past international forays, such as giving $45 billion to SoftBank’s Vision Fund, helped with that aim.
Instead, PIF is focusing increasingly on boosting domestic growth by investing $40 billion a year in the economy. At the end of 2023, the biggest component of the fund’s assets under management was what it calls Saudi sector development, which comprised $251 billion of investments designed to establish and promote the growth of “high-priority sectors”. The relevant section of the annual report mentions agreements with Hyundai Motor Company and Pirelli to set up local manufacturing sites.
The local investment boost is partly born of necessity. With oil below $80 per barrel, well below the government’s fiscal breakeven price of around $96 according to the International Monetary Fund, the Saudi state seems destined to keep running fiscal deficits. PIF is therefore one of the few pots of money available to sustain MbS’s pet projects.
But for every sensible-looking local growth initiative, there seem to be many possible misadventures. There’s little evidence that the Saudi soccer league, for example, has grabbed much international attention despite signing stars including Cristiano Ronaldo. PIF’s so-called giga-projects, typically giant construction efforts designed to boost growth, will come with a monumental and still-uncertain bill. Saudi said it had delayed and downscaled some of the big construction projects including the Line, a planned 170-kilometre long city, Reuters reported.
As well as putting its own money at risk with some of the more speculative investments, PIF is also arguably making it harder to attract foreign investment – another key aim for MbS. International backers are likely to prefer a steady suite of predictable investment opportunities, rather than a raft of passion projects. Having a more cautious PIF would help.
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CONTEXT NEWS
Assets under management (AUM) at Saudi Arabia’s sovereign wealth fund grew by 29% in 2023 to $766 billion, using end-of-year exchange rates, according to its annual report released on Aug. 19.
The Public Investment Fund’s (PIF) investments in the domestic market surged by 45% compared with 2022, in U.S. dollar terms, to $585 billion, whereas international holdings rose by 14% to $156 billion. Saudi accounted for 76% of AUM on Dec. 31, 2023, excluding treasury assets, compared with 68% a year earlier.
Debt also rose, by 45% to $124 billion, equating to 16% of AUM compared with 14% at the end of 2022.
Since the end of 2023, PIF’s AUM has risen by around $160 billion to a total of around $925 billion, according to its website, following the transfer of an 8% stake in national oil champion Saudi Aramco to the wealth fund in the first quarter of 2024.
Graphic: PIF’s assets under management are increasingly local https://reut.rs/3YMO35V
Graphic: PIF’s Saudi assets tilt towards large, strategic projects https://reut.rs/3X9BBf7
Editing by Liam Proud and Oliver Taslic
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