Saudi Arabia is a rapidly-changing nation – especially its economic and financial landscape. The roadmap for this change is contained in the Vison 2030 program, which was announced in 2016 and aims to add diversification to the Kingdom via infrastructure, tourism, technology and health. Well until 2015, very few people outside of Saudi Arabia had heard about the Public Investment Fund (PIF), which was solely focused on the development of the domestic economy.
Fast forward to 2020, and PIF, Saudi Arabia’s SWF, has become the main engine of Vision 2030 and one of the world’s most known SWFs, under the leadership of H.E. Yasir Al-Rumayyan as its Governor. In five years, its balance sheet grew from US$ 150 to US$ 360 billion, thanks to the Fund’s strategy and its long-term investor approach. The Fund has also broadened its mandate beyond the Kingdom's borders, where today 20% of PIF's investments are international and plans to open offices in New York and London are taking place.
The portfolio is clearly split into six different pools of capital: four domestic and two international. The Saudi assets include holdings (mature investments), sector development (underdeveloped or nonexistent sectors), real estate (specific projects) and, most notably, the so-called giga projects (empty plots of land that are turned into ecosystems). The latter include the Red Sea Project, Qiddiya and NEOM – which means new future and covers 16,000 square miles in the Tabuk province.
The two international pools consist of the international diversified pool, which is dedicated to relatively liquid direct and indirect investments in different areas including real estate, debt, fixed income and public and private equity. The international strategic investments focus on industries of the future that secure significant returns and includes large commitments such as SoftBank Vision Fund (US$ 45 billion), Blackstone Infrastructure Fund (US$ 20 billion) and Uber (US$ 3.5 billion). At the end of Q1 2020, PIF invested into US businesses affected by COVID-19 in various sectors including entertainment, hospitality and energy. And between Q3 and Q4, it invested US$ 3.3 billion into subsidiaries of India’s Reliance Group.
But the organization’s growth will not stop there, and the opportunities and challenges are significant. PIF is mandated to drive the diversification of the Kingdom away from oil and has ambitions to become one of the, if not the world’s largest SWF (see page 38), with US$ 2 trillion AuM by 2030. Whether the oil reserves of the country and the injections from other government entities will suffice for that goal, that’s a different story.
For the bold vision that requires such transformation, for its unparalleled alignment with the country’s development plans, for the growth of its balance sheet and for the significant increase in investment activity throughout the year, Global SWF believes that the Public Investment Fund (PIF) is a worthy recipient of the 2020 Fund of the Year award. We had the pleasure of offering the prize and of discussing the Fund’s performance and ambitions with Yazeed Al-Humied, PIF’s Head of Local Holdings Investments.
[GSWF] Can you please explain PIF’s transition from a local fund to one of the world’s most active SWFs?
[PIF] When the PIF was founded in 1971, its mandate was to finance domestic commercial projects. Our focus changed in the past five years and we are now driving the Vision 2030 agenda and the diversification that will enhance Saudi Arabia’s wealth, foster its transformation away from oil, build and enable the private sector, and support the country’s ambition to become a global investment powerhouse. PIF’s AuM have doubled and we are well above our target TSR since inception. We have launched 10 new sectors and more than 30 new companies, creating over 190,000 new jobs.
[GSWF] Can you please describe PIF’s corporate governance and oversight?
[PIF] All of PIF’s investment decisions are made solely on a commercial basis and are guided and reviewed by five key committees specialized in investments; audit and compliance; risk; human capital attraction and motivation; and planning and strategy execution. PIF also has 300+ representatives on portfolio company boards to oversee operations.
[GSWF] PIF’s AUM grew to over US$ 360 billion in 2020 – what is the source of this funding?
[PIF] PIF has a long-term financing strategy built around four clearly established sources of funding, including capital injections and asset transfers from the government; retained investment returns; and loans and debt instruments.
[GSWF] This year, PIF entered the Top 10 most active SOIs – what do you make of such challenging year?
[PIF] 2020 was defined by incredible global challenges, with COVID-19 having a devastating impact on lives and economies around the world. Our hearts go out to all those impacted by the pandemic. Yet, the uncertainty created important opportunities for us. We are a patient investor and deploy capital with a long-term view across sectors. Our U.S. equity acquisitions allowed us to selectively build positions in a range of high-quality companies and sectors that had the potential to help lead a global economic recovery. During the past four years, we have increased our share of international investments from 3% to 20%; and have grown our staff from 40 to 1,000+, a phenomenal growth rate that we are very proud of. As a key part of our employee growth, we also continue to manage our Graduate Development Program, which we feel is the top such program in the country.
[GSWF] Regarding your increasing activities with equities, are you building your own internal capabilities?
[PIF] As part of our growth, our management team has been expanded and enhanced with talented executive hires from Saudi Arabia and internationally who have track records of accomplishment in evaluating promising public equity investment opportunities around the world.
[GSWF] How does PIF juggle a portfolio of significant domestic giga-projects with high-profile investment overseas?
[PIF] Our strategy is centered around six different pools and our aim is to ensure a consistent ratio of 20% international, and 80% domestic.
The Giga-projects represent huge undertakings, and we are fully committed to delivering these projects in a timely manner. One thing NEOM, the Red Sea Project and Qiddiya have in common is the strategic aim of catalyzing the private sector to diversify the Saudi economy. As integrated ecosystems, these giga-projects will exert a powerful and enduring impact on economic development by creating or expanding key sectors, spurring local content development and attracting investment. And they will foster entrepreneurial opportunities, create cascades of jobs, and enhance quality of life.
[[GSWF] What is the investment strategy regarding international investments?
[PIF] PIF’s international strategy looks at maximizing financial returns over the long term – we do not necessarily target specific regions and our aim is to invest in the world’s most innovative and transformational businesses and projects. The last couple of years have been very exciting for the Fund, as we have made significant progress internationally, e.g., our investment in Uber has created 150,000 jobs in Saudi Arabia; our injection in Jio Platforms gives PIF a chance to tap into the enormous potential of India’s digital economy, and our partnership with Lucid Motors positions Saudi Arabia as a key market for an electric vehicle that can transform the future of energy, transport, climate and electric power.
[GSWF] How do Saudi citizens benefit from PIF’s investment activities?
This model I’ve described is designed specifically to benefit and positively impact the people of Saudi Arabia. For example, our international investments could include knowledge-transfer, foreign capital investment, and the building of physical plants. Those objectives work together to create an ecosystem that serves, to quote Vision 2030, “a vibrant society, a thriving economy, and an ambitious nation” – goals manifested by dynamic new sectors, good jobs, a capable workforce, and Saudi Arabia’s valuable and impactful role on regional and global stages.
[GSWF] How does PIF typically work with its portfolio companies?
[PIF] We do that through the “PIF Way”, which is our approach to enhancing the value of these companies through our independent governance and operational framework. PIF establishes businesses along with other investments and partnerships intended to unlock new sectors. We are an active investor with well over 300 representatives serving on the boards of our portfolio companies, which fosters companies across sectors, asset classes and geographies to become regional and global champions, stimulate innovation, create and nurture partnerships, and speed the transfer of knowledge and technology. In turn, these fully owned companies create new income streams, maximize resources, and spur innovation.
[GSWF] Lastly, what is the goal of the upcoming annual Future Investment Initiative conference?
[PIF] The FII Institute is a stand-alone, not-for-profit foundation that brings together a diverse group of global thinkers and investors building relationships and access, along with educating the global community on trends and initiatives. As such, we consider it a key component in the Kingdom’s ambition to become a global investment powerhouse. The FII Conference itself is now one of the very few top business and financial conferences in the world. Last year we welcomed nearly 300 speakers from more than 30 countries, and 6,000 attendees from 90 countries. We look forward to another compelling event as the next FII conference takes place January 26-28, 2021 under the theme “The Neo-Renaissance.”