Over the past decade, Saudi Arabia has attracted dealmakers, bankers and asset managers looking for capital, as the Public Investment Fund (PIF), the sovereign wealth fund, embarked 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,” a senior investment banker in Dubai was quoted as saying by the newspaper. Fund managers, bankers and companies that have sought to raise capital in the kingdom are already feeling the effects of the shift.
Additional Terms
Investment managers say Saudi officials have placed many additional conditions on the injection of funds, often demanding that local staff be hired and that at least some of the funds be used to invest in local companies and projects.
Others have been told that Riyadh wants to see reinvestment in the kingdom in order to commit to new financing, bankers said.
BlackRock, a US asset manager, has secured $5 billion from the Public Investment Fund to set up a new investment company in Riyadh, which it announced in April, but it 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.”
“The investments made by the Public Investment Fund are presented to multiple committees and focus on their main sectors, in accordance with the Fund’s mandate and strategy,” he added.
Bankers say companies are no longer turning to Riyadh for cash as often as they once did.
“Client interest has dropped significantly, partly because we vet (investment decisions) very carefully, and there has not been a huge amount of success from these efforts and offers,” the Dubai-based banker, who was not named, was quoted as saying by the newspaper. “People (seeking financing) realise that it doesn’t work just by showing up and signing cheques.”
According to the newspaper, what is happening is a clear contradiction with 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 $1 trillion plans to diversify the economy.
The fund has sought to rapidly increase its investments in foreign assets from almost zero to its target of 24% of its portfolio, and has made waves with a series of high-profile deals, including a $45 billion injection 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 companies operating between cruise ships, mining, sports assets and gaming companies.
He also pumped tens of billions into the US and European stock markets, in addition to two billion dollars into a private investment project established by Jared Kushner.
The fund’s increased activity 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 their highest levels in years, fueling a boom in the Gulf and helping Saudi Arabia post a budget surplus in 2022, its first in nearly a decade.
But since then, the kingdom has cut oil production in an attempt to stabilize slumping crude prices, hitting government revenues and pushing the budget back into deficit as Riyadh faces huge financial obligations to fund development plans. Deals have also fallen through, bankers say.
The British newspaper quoted an unnamed London-based investment banker as saying that Saudi Arabia had presented itself generously as a source of money, and now it has become more stringent, adding: “It is part of a maturing strategy. They could not continue like this forever.”
According to filings with the U.S. Securities and Exchange Commission, the value of PIF’s U.S. equity holdings fell from about $35 billion at the end of 2023 to $20.5 billion at the end of June, including the sale of its stake in BlackRock Inc., and the disposal of its stakes in Carnival Cruise Lines Inc. and Live Nation Entertainment Group.
ambitious
Saudi officials say the kingdom’s ambition has not changed and there is still a lot of activity going on with work continuing on a series of mega projects, but Finance Minister Mohammed al-Jadaan told a conference in April that Riyadh would “adapt” as needed.
“We will extend some projects, we will reduce the size of some projects, and we will accelerate some projects,” he said.
Prince Mohammed bin Salman was focused on building infrastructure, a U.S.-based asset management executive added.
“Saudi Arabia has turned purposefully to domestic growth projects. They have a bold ambition for what they want to become,” he continued.
Local spending
“The flip side is that the Saudis are tired of being treated as just a cash cow and are very suspicious of money-grubbers,” another London-based banker told the Financial Times. “They want people to put their best foot forward in the game.”
The fund’s spending continues at home, with the fund aiming to invest at least $40 billion annually 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 AFC Asian Cup in 2027, the Asian Winter Games in 2029, and Expo 2030. In addition, it is the only bidder to host the 2034 FIFA World Cup.
The bankers added that PIF subsidiaries, including Riyadh Air, a new airline, Safi, a gaming company, and Maaden, a mining company, are doing most of the investing themselves as they pursue their own goals.
“There is a lot of activity in the 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.
