Saudi fund trying to build a post-oil economy

RIYADH

This week global banking elites attend the Future Investment Initiative forum in Riyadh, a focal point of Saudi Arabia's economic reforms, as the country’s the Public Investment Fund (PIF) is bankrolling the transition:
From world-class footballers to a new national airline and even a speciality shop serving camel milk gelato, the PIF has splashed billions on acquisitions intended to diversify the oil-reliant economy.

How did the formerly passive sovereign wealth fund evolve into the engine of Crown Prince Mohammed bin Salman's Vision 2030 reform agenda, and what do its investments say about where the kingdom is headed?

Founded in 1971, the PIF maintained a low-profile portfolio for decades until a 2015 cabinet resolution reconstituted its board and named Prince Mohammed chairman - a change the fund's website describes as being "reborn".

The idea, said Saudi political analyst Sulaiman al-Oqaily, was to create a kind of "alternative oil field" that would facilitate Saudi Arabia's transition away from fossil fuels.

"The Saudi private sector was fragile and not at the level of ambition to manage the kingdom's transition from a resource-dependent state to a productive state," Oqaily said.

"Therefore, the Saudi leadership wanted to have an active fund that would establish companies with a return, so that it could replace the oil fields if they dried up one day."

The PIF now boasts assets under management exceeding $700 billion.

Halfway through the Vision 2030 project, however, Saudi Arabia remains heavily dependent on oil, even if official statistics show steady growth in non-oil sectors.

Robert Mogielnicki of the Arab Gulf States Institute in Washington said it is "too early to evaluate the extent of the fund's effectiveness in actually diversifying the economy."

The PIF's high-profile investments in foreign firms include stakes in Uber, electric car maker Lucid and video game company Activision Blizzard.

Yet domestic investments constitute 77 percent of the fund's portfolio.

Its so-called giga-projects include the $500 billion futuristic megacity known as NEOM, which has generated buzz primarily for The Line, planned parallel mirror-encased skyscrapers extending over 170 kilometres of mountain and desert terrain.

The PIF's unmatched resources means it has to be mindful of its impact on local markets, Mogielnicki said.

"My sense is that how the PIF enters local markets and industries is ultimately less important than how it steers these new entities and then how the fund exits," he said.

"The most significant risk associated with certain smaller, domestic investment initiatives is the potential for crowding out private sector actors."

These concerns aside, there is little doubt the PIF will keep growing.

The crown prince has said he wants the fund to have $1 trillion in assets by the end of 2025.