Sovereign Wealth Funds have wielded a large financial power and interest over the last decade, reaching a record $11 trillion in Assets Under Management globally in 2022. Backed by state governments, SWFs typically have broader mandates compared to privately owned funds, allowing them to not only focus on financial returns but also on other developmental goals such as economic and sectoral growth. Their longer-term investment horizons also favor the undertaking of investments through a more strategic lens.
A perfect example of such SWF is the Public Investment Fund (PIF) of Saudi Arabia. Reborn as a catalyst of Saudi Vision 2023, PIF has grown into one of the largest SWFs globally with over $650 billion in AUM and 2,000 employees. In the last five years, PIF has established over 80 new companies and helped create half a million jobs in KSA whilst achieving an annual Total Shareholder Return of roughly 8 percent. PIF plans to achieve $1 trillion by 2025 and $2 trillion by 2030 in AUM.
PIF operates with a clear strategic mandate to support Vision 2030, and it does that through five key pathways:
1- KSA economic diversification enablement
The KSA’s reliance on oil exports has long been identified as a vulnerability, susceptible to fluctuations in global oil prices. To address this potential risk, the Kingdom launched Vision 2030, an ambitious blueprint aimed at transforming the economy and creating a vibrant society with a rich culture and robust institutions. At the heart of this transformation lies PIF.
The efforts that PIF is spearheading from a sectoral and economic diversification perspective are fostering fast growth and expansion of several sectors. Some of these investments are rapidly driving a “crowding-in” effect on the private sector. Such an effect occurs when spending from a government or government-like source leads to an increase in economic growth and encourages private sector players to invest due to the creation of new opportunities. A clear example of this effect in KSA has been the development of the automotive sector, specifically electric vehicles. PIF is playing a key role in supporting this effort through investments in Lucid and Ceer. These investments are currently encouraging the private sector to develop capabilities and offerings which will secure critical manufacturing and supply chains as well as drive local content growth.
2- Job creation and human capital development
As PIF invests to advance diverse sectors, it also contributes significantly to job creation and human capital development in KSA. PIF’s investments in Saudi Giga projects (NEOM, Red Sea Global, Qiddiya, Roshn and Diriyah), and in emerging sectors such as entertainment, tourism and culture, have unlocked multiple direct and indirect jobs. On average, PIF’s investment has been creating over 180,000 new jobs a year. For example, through Saudi Entertainment Ventures (SEVEN), a PIF company, over $13 billion is earmarked to create 21 entertainment destinations across KSA, promising over 20,000 direct jobs.
3- Technology and innovation focus
PIF has also been very active on the technology and innovation front, helping place KSA on the global map. There have been significant efforts by the Fund to invest in and localize cutting-edge technologies, with these investments ranging from big e-commerce companies to augmented reality startups and vertical farming. While varying geographically and in nature, these investments all place innovation and technology at the heart of what they do.
PIF has also set up funds to help foster this ecosystem and invest across the different stages. Sanabil is one very clear example. With a commitment of $3 billion annually, Sanabil invests in venture level, growth stage and small buyouts. This dedication to innovation was further highlighted through the transfer of a 4-percent stake in Saudi Aramco to Sanabil earlier this year.
The Fund is also a founding partner in the Future Investment Initiative, an annual platform that brings together global leaders, innovators and thinkers to discuss and shape the future. The FII showcases KSA’s commitment to fostering innovation and entrepreneurship, attracting foreign investment, and promoting collaboration on a global scale.
4- Sustainable development and Environmental, Social and Governance commitment
ESG strategy is on the agenda for most SWFs, with 75 percent of SWFs globally having an ESG policy, and 30 percent setting a carbon emissions target as of July 2022.
With PIF’s stated intention to achieve net zero emissions by 2050, it was the first MENA SWF and one of the first globally to declare such a commitment to net zero emissions. To support its target, PIF expects to invest more than $10 billion by 2026 in eligible green projects, such as The Sudair Solar PV project. In addition, PIF recently launched the Regional Voluntary Carbon Market Company (VCM) which facilitated the auction of 1.4 million tons of carbon credits. PIF also, as the first SWF globally, issued green bonds and raised $3 billion in October 2022. This issuance was oversubscribed more than eight times and enabled PIF to further diversify its sources of funding.
5- Strategic international presence
PIF’s strategic international investments have been instrumental in driving domestic economic growth, and further enhancing its diversification efforts while ensuring a well-balanced risk-weighted portfolio. PIF is very active on the global stage through large-scale investments in big international companies through unicorns and partnerships. While growing and diversifying the Fund’s assets and returns, these investments also allow PIF and subsequently KSA to extend its global reach and influence, and to play a major role in the international agenda for the future global economy.
The relationships enabled through these investments and partnerships also facilitated the growth and the creation of new sectors and opportunities and opened the door to attracting foreign investments into KSA and localization of content or technologies.
SWFs enjoy significant financial power and influence in today’s global financial ecosystem. PIF, as one of the most prominent SWFs globally, has undergone a remarkable transformation journey in less than a decade, from managing surplus oil revenues to becoming a pivotal force in driving KSA’s economic diversification and development. Through strategic domestic and international investments, technology, and innovation focus, and job creation, PIF is catalyzing the KSA economy. As Vision 2030 unfolds, PIF’s role will only become more profound, driving KSA’s inclusive, innovative, and resilient economic growth.
Isabel Neiva is partner at Kearney Middle East & Africa -Transactions & Transformation Practice Lead.
Javier Herrera is partner at Kearney Middle East & Africa.
Martin Pavlica is principal at Kearney Middle East & Africa – Transactions and Transformations Practice.
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