Thursday, December 1, 2022

How Giant Saudi Wealth Fund Is Building a Post-Oil Future: QuickTake

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1. What does PIF spend money on?

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Its greatest holdings are nonetheless in native companies resembling Saudi National Bank, Saudi Telecom Co. and nationwide tasks like Neom, a $500-billion city-state that will run totally on renewable energy and export inexperienced power. Since 2016, when it dedicated $45 billion to MushyBank Group Corp.’s technology-focused Vision Fund, PIF’s international pursuits have mushroomed. A 2018 funding in electrical carmaker Lucid Motors Inc. has soared in worth to nearly $40 billion. It additionally has stakes in online game makers Activision Blizzard Inc. and Electronic Arts Inc. and the digital providers and retail companies of Indian billionaire Mukesh Ambani. In February, the federal government transferred an $80 billion stake in Saudi state oil big Aramco to PIF to spice up its belongings because the fund ready to faucet the worldwide bond marketplace for the primary time.  

2. What is the fund’s goal?

To undertaking Saudi affect and diversify the economic system, a purpose laid out by de facto ruler Crown Prince Mohammed Bin Salman below a plan often known as Vision 2030. PIF’s job is to stimulate inward funding, develop new industries, carry the dominion entry to new applied sciences via its international investments and create jobs. It’s additionally serving to to make Saudi Arabia extra engaging to outsiders. In a nation largely closed off to international vacationers, and with leisure a taboo till a few years in the past, PIF is investing in luxurious resorts, cinemas and leisure complexes to lure extra guests (and to cease Saudis looking for enjoyable overseas). It additionally does offers simply to make cash. When the coronavirus pandemic crashed markets in 2020, PIF invested $40 billion of forex reserves acquired from the central financial institution in a wager on a swift restoration. It bought most of these investments a few months later as shares rebounded. 

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3. Why is PIF borrowing cash?

While a conventional sovereign fund invests extra nationwide wealth to generate income sooner or later, PIF was repurposed as a international investor whereas the Saudi price range was in deficit. As a outcome, borrowing has all the time been a part of the plan because it seems to hit its development ambitions. It’s already tapped international banks for multi-billion-dollar loans. Next up is a inexperienced bond. While it could appear incongruous for a petrodollar-fueled fund to be elevating cash from climate-conscious buyers, PIF has loads of environmental tasks to focus on. Saudi Arabia is crafting its tourism technique round eco-tourism and the fund is the primary backer of most of Saudi Arabia’s renewable power tasks. Through Neom, it’s funding the world’s largest undertaking to provide hydrogen gasoline with out creating any dangerous emissions. 

4. How huge does PIF wish to be?

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Prince Mohammed is well-known for setting formidable targets and PIF is not any exception. He desires it to be overseeing belongings of $2 trillion by 2030, which might make it larger that Norway’s sovereign fund, presently the world’s largest at about $1.4 trillion. PIF’s belongings have nearly quadrupled since 2015 to round $580 billion. The path to $2 trillion will contain extra huge asset transfers from the state. The authorities expects its first price range surplus in nearly a decade in 2022 and the Finance Ministry has mentioned an oil windfall might go into PIF. The fund has additionally been a main recipient of undeveloped land that’s value zero on paper. If it’s used for constructing, its worth can soar. 

5. Why did PIF purchase a soccer membership?

Soccer groups are sometimes acquired by rich people as trophy belongings and their risky fortunes will be a turn-off for pension and wealth funds. PIF’s acquisition of struggling English Premier League membership Newcastle United in 2021 was a part of an effort to spice up Saudi Arabia’s delicate energy via investments in sports activities and e-sports. The kingdom’s detractors noticed the deal as “sportswashing” — an try to enhance the nation’s picture and divert consideration from a poor human rights report. Saudi Arabia could also be following the playbook of neighboring Abu Dhabi, whose Sheikh Mansour bin Zayed Al Nahyan purchased one other English membership, Manchester City, in 2008 and used it as a platform to market the emirate and its state-owned firms world wide. 

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