What's Next for Saudi Arabia's Sovereign Wealth Fund

(Bloomberg) -- It’s been a year of aggressive dealmaking for Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, or PIF. But a delay in the planned public offering of state-owned Saudi Arabian Oil Co. -- Saudi Aramco -- means the PIF won’t immediately receive an expected $100 billion in extra capital to invest. And amid the global furor over the killing of prominent Saudi critic Jamal Khashoggi, senior bankers and businessmen including the heads of Blackstone Group LP, BlackRock Inc., Uber Technologies Inc. and Virgin Group pulled out of the PIF’s forum, the Future Investment Initiative, which begins on Tuesday. It’s still unclear what this will mean for future PIF investments.

1. What does the PIF invest in?

It’s heavily involved in transportation technology, with a 5 percent stake in electric car-maker Tesla Inc., valued at around $2 billion; $1 billion in Tesla’s aspiring rival, Lucid Motors Inc.; and a $3.5 billion stake in taxi-hailing firm Uber. It has announced that it will commit as much as $20 billion to a U.S. infrastructure fund run by Blackstone Group LP, build three cities (Neom, Red Sea and Amaala) on the Red Sea coast and set up a $1.1 billion fund to support small and medium-sized enterprises. The PIF has committed $45 billion to SoftBank Group Corp.’s technology-focused Vision Fund, and Crown Prince Mohammed bin Salman, who controls the PIF, said in early October that it will put an investment of that same size in a second SoftBank fund. The PIF expects to deploy about $170 billion over the next three-to-four years.

What's Next for Saudi Arabia's Sovereign Wealth Fund

2. What is the fund’s purpose?

It’s central to the government’s effort to diversify the economy away from oil, under a plan known as Vision 2030. The fund was set up in 1971 to support projects of strategic significance to the Saudi economy and for most of its history focused mainly on its home market. In addition to its headline-making investments around the globe, it holds about $150 billion of assets in listed Saudi companies, including stakes in Sabic, Saudi Telecom Co., and National Commercial Bank, the kingdom’s largest lender by assets. It currently has assets of more than $300 billion, which could rise to $600 billion by 2020, Prince Mohammed said in an interview earlier this month.

3. How will the Khashoggi case affect the fund?

It’s not clear yet, beyond thinning the attendance list at this week’s forum in Riyadh. Reversing earlier denials of involvement in Khashoggi’s disappearance on Oct. 2, Saudi authorities said Saturday an initial probe showed that the Washington Post contributor was killed after “discussions” at the consulate turned physical. Khashoggi died after he was placed in a choke hold, a person with knowledge of the Saudi probe said. The PIF is an increasingly important player in global markets, so some firms will probably be willing to sacrifice any reputational risk in order to secure investment, said Jason Tuvey, senior emerging-markets economist at Capital Economics. Billionaire Richard Branson, for one, responded to the Khashoggi case by halting talks with the Saudi fund for a $1 billion investment in the space-exploration units of his Virgin Group Ltd. Endeavor LLC, a Hollywood talent agency, is seeking to terminate a deal to sell a $400 million stake in the company to the wealth fund, according to a person familiar with the matter.

4. What happened to the Aramco IPO?

It will take place by 2021, Prince Mohammed has pledged. The share sale was meant to happen in the second half of 2018, but it was undone because of skepticism over the company’s valuation and a plan for Aramco to buy a controlling stake in Saudi Basic Industries Corp., known as Sabic. The crown prince said the IPO’s delay was rooted in a plan for Aramco to push into petrochemicals. He said it would have been unfair to go ahead with the listing only to surprise investors soon after with a big deal in chemicals.

5. What will the PIF do instead?

It might sell as much as 70 percent of its stake in Sabic to Aramco, a deal that could raise $70 billion in capital for the fund. PIF could raise more by selling its stakes in other Saudi-listed companies. Debt is another option. In September, the fund raised an $11 billion loan, marking its first-ever borrowing. The PIF is willing to borrow to diversify the Saudi economy and increase returns from investments.

6. Who runs the fund?

Its managing director is Yasir Al-Rumayyan, a former Saudi Fransi Capital executive who joined in 2015. Over the past year, the executive team around him has been beefed up. It hired former principal at New York-based private equity firm Stonepeak Infrastructure Partners Scott Robertson as head of global markets, according to people familiar with the matter. Other appointments include Abdulmajeed Alhagbani, HSBC Holdings Plc’s local head of asset management, as a director; Alireza Zaimi, a Bank of America Merrill Lynch managing director, as head of corporate finance and treasury and Rashed Sharif, previously the chief executive officer of Riyad Bank’s investment-banking unit, to head domestic investments.

The Reference Shelf

  • QuickTake explainers on Crown Prince Mohammed bin Salman, the young leader behind the Saudi shakeup, and SoftBank’s close ties to Saudi Arabia.
  • The Public Investment Fund website.
  • The Bloomberg News interview with Prince Mohammed on the Aramco IPO.
  • Bloomberg Businessweek on the Khashoggi case and the climate of fear in the kingdom.

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