Saudi Arabia’s Public Investment Fund is on track to meet its $480 billion target of assets under management for the second quarter of 2022, according to the fund’s governor, Yasir al-Rumayyan. The PIF plans to achieve the ambitious goal of approximately $1.07 trillion of assets under management by 2025 and $2 trillion in 2030. Smart investments in technology firms, many of which enjoyed booming stock prices since the coronavirus pandemic, can help support these growth ambitions. However, fund officials have their work cut out for them to foster the genuine wealth creation required to transform the country’s economy and sustain the economic well-being of citizens.
The PIF signaled a serious interest in global technology investments with its massive $45 billion commitment to the SoftBank Vision Fund, the world’s largest technology investment fund, in 2018. A more modest $1.3 billion investment in Lucid Motors by the PIF in 2018 was nevertheless worth $41 billion after three years, owing to a successful initial public offering by the electric vehicle maker. The Saudi fund’s strategy for 2021-25 reaffirms the significance of local and international technology firms in its investment portfolio.
A Fund Fit for the 21st Century
Investments in local, Saudi technology firms serve to accomplish multiple PIF program objectives, including the need to “unlock new sectors” and “localize cutting-edge technology & knowledge.” Elm, a digital service firm wholly owned by the PIF, plans to market 30% of its shares on the Saudi stock exchange Tadawul. The PIF likewise owns 50% of the shares of noon, the Riyadh-based e-commerce marketplace and Middle Eastern competitor of Amazon. The Saudi Information Technology Company, which the PIF also owns, works to secure sensitive national infrastructure and information assets. In 2019, the PIF officially launched the Jada Fund of Funds to further support the development of the region’s private equity and venture capital ecosystem.
Fund officials hope that strategic investment partnerships will generate domestic dividends. There is some early evidence that this strategy is working in the technology domain. In September 2021, SoftBank led a $125 million financing round for Unifonic – the Japanese conglomerate’s first deal with a Saudi-based technology company. This investment process reflects the recycling of investment capital that is at the heart of many Saudi spending initiatives. However, the Unifonic deal was funded by SoftBank’s Vision Fund 2 and is a fraction of what the PIF committed to SoftBank’s first Vision Fund in 2018. Meanwhile, Lucid is reportedly planning to build an electric-vehicle factory in Saudi Arabia by 2025 or 2026.
The PIF holds stakes in promising technology firms from the world’s largest economies. Magic Leap, an augmented reality startup, secured $400 million from the PIF in 2018; the U.S.-based technology firm is reportedly planning to open a computing innovation center in Saudi Arabia through a partnership with Saudi Aramco. The Saudi sovereign wealth fund also invested $3.5 billion in Uber Technologies, which shook investor confidence in past years, but the U.S.-based mobility provider may be well positioned for a comeback in 2022.
Babylon Health, a British telemedicine company that offers virtual consultations with doctors and other app-based services, is one of the world’s fastest-growing health-care companies. The PIF’s 2019 investment in Babylon Health preceded the coronavirus pandemic and holds tremendous promise. The PIF also invested approximately $1.5 billion in Jio Platforms, a major telecommunications and digital service firm in India, and added shares of the Chinese multinational Alibaba Group Holding in the third quarter of 2021.
Sizeable investments in global technology firms do entail financial risks. The Chinese government’s crackdown on the country’s technology sector erased billions of dollars in value from Chinese technology stocks. The stock price of SoftBank Group fell steadily throughout the second half of 2021 – resting at $23.41 on January 10, 2022, down from $45.94 on May 10, 2021 – amid a broader sell-off of Asian technology stocks. Technology firms likewise face headwinds in the United States, where both Democrats and Republicans view reining in technology firms as part of their political agendas.
Technology is just one component of the PIF’s expansive portfolio, which also includes companies operating in tourism, hotels, power and desalination, physical retail, and even helicopter services. In this manner, the Saudi sovereign wealth fund balances a diversified pool of international investments alongside national investment initiatives. In December 2021, the PIF created the National Development Division to better support the kingdom’s economic and social development.
Reality’s Price Tag
Scholars and analysts are increasingly asking whether and when Gulf sovereign wealth resources might serve as a substitute for proceeds from the oil and gas sector. These questions are worth raising with respect to the PIF, which lies “at the heart of Saudi Arabia’s rapid transformation.” Sustainable returns on investment can serve as key non-oil revenue streams over the long run, but they are unlikely to sustain the large Saudi state and its economy in the same fashion as oil proceeds. Norway’s $1.4 trillion sovereign wealth fund, the world’s largest, provides annual payouts worth only one-quarter of the state budget.
Despite its commendable growth, the PIF’s target of reaching $2 trillion in assets by 2030 seems unlikely. Of course, there are quicker ways for the fund to approach such an asset size in a nominal sense but without organic growth. Placing shares of Aramco – or the entire company – under the PIF’s corporate umbrella or boosting the valuations of local PIF-owned development projects are two such avenues. However, the distinction between reallocating investment capital and creating wealth has important implications for the economic well-being of average Saudi citizens. The former can look impressive on a balance sheet, but the latter produces societal impact.
The PIF is undoubtably an influential economic catalyst in the kingdom and beyond. Only time will tell if the Saudi sovereign wealth fund can become a sustainable economic engine.