Saudi Arabia’s Public Investment Fund (PIF) has added Capcom and Nexon to its portfolio of chunky stakes in gaming stocks, making the sector one of its biggest targets in its public equity strategy and adding to its rapidly growing exposure to the gaming and eSports market.
The Saudi fund has disclosed shareholdings of more than 5% in the two Tokyo-listed gaming firms. Its stake in Osaka-based Capcom, which owns the Street Fighter and Resident Evil franchises, is valued at US$332 million, according to Bloomberg. It also has a stake worth US$883 million in Nexon, which owns role-playing games.
PIF started building stakes in listed gaming companies in Q4 2020, amid the pandemic, in response to a surge in consumer demand for gaming, eSports, home entertainment and streaming services as swathes of the global population experienced waves of lockdown. The move to boost investments in the sector is part of its 2021-2025 strategy to invest in innovation in strategic sectors including entertainment, leisure and sports.
The fund says it intends to create “opportunities for the growth and diversification of Saudi Arabia’s economy, to help achieve the objectives of the kingdom’s Vision 2030.” According to Boston Consulting Group, Saudi Arabia’s gaming market is forecast to reach US$6.8bn by 2030, with a compound annual growth rate of 22%.
In the latest available 13F filings with the US Securities and Exchange Commission – for end-Q321 – it declared investments worth US$5.8 billion in the US’s three biggest gaming companies, representing 13% of its total US public equity portfolio. The proportion of gaming stocks reached a peak of 42% of the portfolio at end-Q2 2021, but fell back as a result of the IPO of Lucid Motors. If its US$26 billion stake in the electric vehicle manufacturer was removed, gaming companies would represent a third of PIF’s total US equities portfolio.
Worth US$2.9 billion, its largest holding was in Activision Blizzard, which owns several leading franchises such as Call of Duty, World of Warcraft and Candy Crush Saga. Last month, PIF received a US$1.1 billion boost in its investment in Activision Blizzard after Microsoft agreed to buy the video-game maker. Microsoft will pay US$95 a share in cash, valuing the stake at US$3.6 billion, up from US$2.5 billion before the announcement. Today, PIF’s stake is worth a shade over US$3 billion. The stock price has come under pressure after it was sued by California’s Department of Fair Employment and Housing over allegations of sexual harassment, unequal pay and retaliation.
Its second biggest holding was a stake worth US$2 billion in Electronic Arts which holds the franchises of FIFA. The value of the 5% stake is currently down slightly to US$1.9 billion. In a filing published by the SEC on Monday, it announced that it had a 7% stake in Take-Two Interactive, which possesses franchises such as Grand Theft Auto and NBA 2K, which at current stock values is worth US$1.5 billion – up from US$0.9 billion at end-September.
The SEC is likely to publish PIF’s 13F filings for end-December in coming days, but given the strategy witnessed on the Tokyo and New York markets, we expect PIF’s holdings in gaming companies to increase alongside its overall move to boost exposure to public markets.
PIF’s gaming interests extend beyond public stockholdings. In January, the sovereign wealth fund launched a new gaming company, called Savvy Gaming Group, to strengthen its position in the gaming industry. It aims to become the “leading gaming and eSports group domestically and internationally, and will work to further develop an integrated ecosystem for the sector.”
SGG plans to purchase leading independent eSports company ESL Gaming from Sweden’s Modern Times Group in a US$1.05 billion cash transaction, which is expected to close in Q2 2022. It is also acquiring eSports platform Faceit, which will merge with ESL to form the ESL Faceit Group. The new entity will aim to build competitive gaming communities with a digital platform that can enable players to connect, as well as enabling partners to reach new market segments.