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Inside Saudi Arabia’s $360 Billion Investment Fund
Saudi Arabia’s $360 billion sovereign-wealth fund, the Public Investment Fund, or PIF, has been aggressively putting its money to work in investments around the world.
The governor of the fund, Yasir al-Rumayyan, wants to wean the kingdom off its reliance on oil, which accounts for nearly two-thirds of its revenue.
Al-Rumayyan, 50, was the head of an investment bank in Riyadh.
Now, he is also the chairman of Saudi Aramco and a top adviser to Crown Prince Mohammed bin Salman. Al-Rumayyan recently gave a rare interview to Barron’s.
In the first quarter, the fund invested pretty heavily in some U.S. equities, like Marriott International and Walt Disney, that were out of favor at the time.
What was the rationale behind that?
Two things.
Heavily is a relative term.
What looks big for some funds might not be as big when it comes to the PIF, because our assets under management are $360 billion-plus today, up from $150 billion back in 2015.
So we more than doubled up.
As to the second question, why now?
Because we thought with a great crisis, you have great opportunities.
The year 2020 is one of those years everybody thought was going to be different than the previous decade or so.
Since 2009, we’ve been in one of the longest bull markets in the history of the equity markets.
People were expecting that the market would have to correct.
With the pandemic, with the trade war, with the uncertainty, you saw lots of different sectors going down excessively.
The pandemic is not going to last forever.
It’s something that will eventually end, just like any other pandemic in the history of mankind.
That’s why we started deploying funds into not only the U.S. markets, but also in global markets.
We were in Italy, we were in China, we were in France, we were in the U.S., we were everywhere.
These markets were really going down to levels unseen in a long time.
And we started buying in.
And we went into these investment opportunities in three different ways: opportunistic, strategic, or for rescue financing.
Generally, $10 billion to $20 billion of your investments end up being revealed in public U.S. filings.
How do we understand the rest of your investments? How much do you spend in Saudi Arabia, for instance?
Historically, we were only in Saudi Arabia.
We started in 1971 and invested for developmental purposes only.
In 2015, we changed our strategy.
The board was changed, even the reporting lines were changed.
We did a full diagnostic. What have we been doing in the past decades?
We started with benchmarks—what are other long-term investment funds and sovereign-wealth funds doing?
And what do we want to do? We looked at the diagnostic, the benchmark, and we saw the gap.
And what did you decide on?
We came up with six pools of investments.
Two of them are international, and four of them are domestic.
The four domestic are Saudi equity, which includes mature investments.
There’s also sector development, which goes into new sectors that either are underdeveloped or nonexistent. I’ll give some examples—waste management.
There were no rules. There were no companies in Saudi for waste management.
We worked with the government to get the rules and regulations and laws in place.
And we created our first company in waste management. Same thing is applicable in entertainment—movie theaters. We came in, we worked with the government, and we didn’t leave it exclusively for us. We asked the government to open it up for everyone.
Today, I think there are seven or eight different movie theater companies. And they’re all doing extremely well, opening up in different towns and cities around the kingdom.
The third area is called giga projects. And the fourth is real estate. The difference between real estate and giga projects is that real estate goes into projects by themselves.
The giga projects are more like ecosystems. And what do I mean by ecosystems?
It’s going into empty plots of land.
Nothing is there. It’s not close to towns or cities.
And we create the whole thing, starting from scratch when it comes to the laws, rules, and regulations, when it comes to the infrastructure that we need to bring in, when it comes to the massive planning, and when it comes to the optimal capital structure and how to get third-party investors.
There are two international pools.
One is the diversified portfolio.
It’s like your typical international investment fund, where we basically get third-party managers to manage some of our funds and some of our small investments here and there.
And then we have a strategic international portfolio, where we have the likes of the SoftBank Vision Fund, the Blackstone Infrastructure Fund, and Uber Technologies.
Some of our international strategic investments are there, too.
And if you have over $360 billion invested in the fund, what’s the breakdown as far as these different kinds of domestic and international investments?
Initially, it was 98% in Saudi and less than 2% international. Today, it’s about 82% Saudi and about 18% to 20% international.
Ideally speaking, the strategic asset allocation that we want to have is 25% international versus 75% domestic.
Not everyone is open to taking money from a sovereign-wealth fund. How do you deal with that? What’s your pitch to companies?
We don’t have much resistance from most of our partners. All partners really appreciate our work with them.
We’ve seen maybe a case or two that was based not on investment decisions, but some other decisions.
The fund has a big position in Uber, which has been up and down during the pandemic.
What are your thoughts about that business right now?
I’m really not sure if I can comment, since I’m a board member, but as an investor we like the company, we’ve been there for a long time now—since, I think, 2016 or 2017.
If you look at the impact of Uber in the kingdom, it has created about 150,000 jobs for Saudis.
We like what the investment brought into the world, not only to Saudi Arabia—how they’ve disrupted positively the service markets and are catering to everyone, while making the cost more affordable for a lot of people.
If you put all of this together, I think Uber is one of the great investments that we’re in.
They’ve talked a lot about transitioning to autonomous vehicles.
Do you see that happening in the next decade, the next five years?
What do you think the timeline is?
The autonomous-vehicle initiative has been carried out by a number of different competitors.
And unfortunately, those competitors are not talking to one another.
They’re using different technologies, trying to see what is the prevailing technology.
Some people use radar, infrared, laser. So we have to all wait and see what would prevail for the auto makers and for the likes of Uber or the e-commerce players that would like to have a better, more efficient service at the same time with a lower cost.
When do I think it’s going to come?
I mean, in 2016, they were talking about three years.
Now we’re in 2020, and still it’s not materializing.
And the problem, I think, is not only the technology, but the regulations.
In places like Neom a high-tech city being built in Saudi Arabia as a giga project, for instance, I think it would work fine because we can cater the infrastructure to autonomous vehicles.
As you say, you’re fulfilling two missions: investing overseas and helping develop the domestic economy. So you have companies that are racing to win global market share, like Uber.
And then you have Saudi Arabian companies looking to create business in the kingdom. Is there some overlap?
Uber is not the best example, but I can tell you what we’ve done with Uber.
We were supporting them with the government, not only in Saudi Arabia but also with the governments of the Middle East in some of their acquisitions.
And that’s what we brought to the table.
But I can tell you about another of our companies in the U.S.—Lucid Motors.
I think it’s going to be the best electric-vehicle company in the world.
They just announced that their charge range is 500-plus miles, which is more than 130 miles more than the second best.
We’ve put close to $1.5 billion into this company.
We changed the board, and we helped them put their manufacturing facilities in Arizona.
Pre-Covid-19, we were targeting the fourth quarter to have commercial production.
Now, it’s going to be in the first quarter of 2021.
In the second stage, we are going to open the markets for Lucid in Saudi Arabia, we’re going to have their manufacturing facility in Neom, most likely, or maybe some other location, and we can give them some kind of offtake for the domestic purchases from the government, automobile procurement, and they can immediately hit the ground running.
Where does your expertise on electric vehicles come from?
That’s part of our governance.
Our management looks at each one of these companies that are in our portfolio, and they see what skill sets are needed.
The PIF staff has grown from 40 people in 2016 to over 900.
I think by year end, it is going to be more than 1,000.
By 2025, It’s going to be more than 2,000, hopefully, with all of the offices and the recruitment that we are doing.
We are working with some of the best headhunters around the world, in New York and California and Europe and Asia.
And we get the subject-matter experts.
So in the Lucid example, we have the head of international investment as a board member, we have Andrew Liveris, formerly from Dow Chemical, as the chairman, and we have an industry specialist.
We deal with all of the advisers and consultants that we can put our hands on to help these companies go to the next level.
We work with them on the strategy, and we monitor their performance continuously.
In 2018, Elon Musk said that he was going to take Tesla private, and he said that he had the money from Saudi Arabia.
Was there a Tesla investment that you were considering?
We had an investment in Tesla, and we got out of this investment.
We had some talks with Musk, but I really cannot comment on it.
This issue is sensitive, especially since Tesla is a listed company.
What do you think Western investors should know about the PIF and Saudi Arabia that maybe people don’t understand?
What we need to do is to showcase our performance, our governance, our methodology, our mission, our strategy to the world, to show them what it is exactly that we’ve been doing and what our aspirations are.
PIF is becoming the main engine of Vision 2030, which is the vision of the nation. We would like to get more people into Saudi to invest with us.
Come to Saudi and invest and you will have many facilities, you will have a good partner.
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