How Saudi's PIF evolved into one of the world's largest sovereign wealth funds
Discover the history of the PIF and its broader impact on Saudi Arabia’s economic outlook
The Public Investment Fund (PIF) of Saudi Arabia has emerged as a central player in the country's vision to diversify its economy away from oil dependence. This article delves into the PIF's history, its investment strategies, geographic focus, and its broader impact on Saudi Arabia’s economic landscape.
Every country has a sovereign wealth fund with a primary target to generate economic well-being for its citizens usually by investing in assets.
The PIF has been established in 1971 and has evolved from a relatively modest entity into one of the world's largest sovereign wealth funds. With a diversified portfolio spanning technology, real estate, energy, and beyond, the PIF is both a driver of domestic development and an international investor.
Why and how did the PIF start?
The PIF was originally created to invest in sectors that could bolster Saudi Arabia's economic growth. Initially, its activities focused primarily on domestic investments. However, the fund's trajectory took a significant turn with the launch of Vision 2030 by Crown Prince Mohammed Bin Salman in 2016. This strategic framework aimed to reduce Saudi Arabia's dependence on oil and diversify its economic activities, placing the PIF at the heart of this transformation.
Saudi Arabia, along with other oil-dependent countries, made a long-term plan of action with a sole goal of having a diversified investment portfolio, simultaneously generating multiple streams of revenue other than oil.
The reason for that diversification being is how crucial this is for the long-term stability of the Saudi economy, especially in the face of fluctuating oil prices and global shifts toward sustainability.
In response to Vision 2030, the PIF has seen an expansion. It was tasked with investing in sectors beyond oil and gas, aligning its strategy with the country’s broader economic goals. This period marked the PIF’s transition from a national investment vehicle to a global financial powerhouse, with assets under management (AUM) reaching impressive figures.
What sectors and industries does the PIF invest in?
The PIF’s investment strategy is multifaceted, focusing on several key sectors:
Technology: The PIF has made significant investments in technologies. This includes ventures into artificial intelligence (AI), autonomous driving, and biotech. Notable investments include stakes in companies like Uber and Lucid Motors, as well as backing for tech startups through various funds and partnerships.
Damian Hitchen, CEO of Saxo Bank MENA said that one of the PIF’s biggest investment in technology was “a $45 billion (Dh165 billion) stake in SoftBank’s Vision Fund and significant stakes in technology companies like Uber and various startups”.
Real Estate: Domestically, the PIF is a major player in Saudi Arabia’s real estate sector, investing in large-scale development projects such as the Red Sea Project and Neom — a futuristic city planned to be a hub for technological and economic innovation.
“The PIF is involved in major real estate developments, including the King Abdulaziz International Airport in Jeddah and the King Khalid International Airport in Riyadh,” added Hitchen.
Energy: While Saudi Arabia’s economy is heavily reliant on oil, the PIF is investing in sustainable and alternative energy sources. This includes investments in renewable energy projects, as well as innovations in energy storage and efficiency.
Entertainment and Leisure: Aligning with Vision 2030’s goals, the PIF is investing in the entertainment and leisure industry. This includes funding for mega-events, theme parks, and cultural initiatives aimed at boosting tourism. A city like AlUla is a prime example. It is a city made for leisure and attracting tourists eventually generating a reliant stream of income through tourism.
All the sectors mentioned above can individually be as strong and reliant as the oil sector. It is very evident that the country is allocating its resources efficiently to achieve this goal.
Saudi Arabia is trying to place itself as a global destination for tourism and entertainment, with mega events and world-class sports competitions, the country is gaining more attraction by the day.
The PIF’s choices for partnerships are very strategic, essentially maximising outcome through efficient allocation of resources. Hitchen added to this point by saying, “the PIF actively seeks international partnerships to enhance its global reach and impact. Notable collaborations include investments with SoftBank, the Russian Direct Investment Fund, and various international private equity firms. These partnerships help leverage global expertise and resources”.
Does the PIF invest domestically or internationally?
The PIF’s investments are both domestic and international. Domestically, the fund is crucial in funding major infrastructure projects and developing new economic zones. Internationally, the PIF has expanded its reach significantly, with substantial investments in global markets. This international diversification helps mitigate risks associated with the volatile oil market and positions the fund as a global economic player.
For example, the PIF’s investment in global tech giants and its partnerships with international firms underscore its strategy to leverage global opportunities. Additionally, its investments in international real estate and infrastructure projects reflect a commitment to broadening its global footprint.
What is the PIF’s value of assets?
The PIF manages assets valued at over $700 billion (Dh2.5 trillion), making it one of the largest sovereign wealth funds globally. The fund has experienced rapid growth in recent years, thanks to strategic investments and increased capital inflows.
The PIF’s growth trajectory is set to continue, with projections suggesting that its assets could exceed $1 trillion (Dh3.67 trillion) by the end of the decade. This growth is driven by both the scaling of existing investments and the exploration of new opportunities across various sectors.
Hitchen spoke to Gulf News about the PIF’s growth trajectory saying, “the PIF has experienced substantial growth, driven by its strategic investments and increased capital deployment. The fund aims to double its assets by 2025, becoming one of the largest sovereign wealth funds globally. Its growth trajectory reflects a broader ambition to enhance economic diversification and sustain long-term investment returns”.
Impact on job creation and infrastructure development
The PIF’s investments have had a significant impact on job creation and infrastructure development. Major projects like Neom and the Red Sea Project are expected to generate thousands of jobs and stimulate various sectors of the economy. Additionally, investments in technology and entertainment are fostering new industries and creating high-skilled employment opportunities.
With all the new projects, the country needs a multi-skilled workforce to run them. Whether blue- or white-collar workers, Saudi Arabia will not thrive and put its plan into full force without massively expanding its workforce. This in turn generates job opportunities, catering to all types of skills available in the country. Unemployment rates have dropped and will continue this trajectory as projects expand and come into action.
Infrastructure developments funded by the PIF also contribute to the broader economic growth of Saudi Arabia, improving the country’s global competitiveness and enhancing the quality of life for its citizens.
Vladimir Kokorin, founder of UAE-based business travel platform Tumodo shared some statistics about the PIF.
The PIF boasts an impressive portfolio of investments spun over multiple cornerstone industries and works towards an ambitious goal of contributing to creating 1.8 million jobs
The PIF is governed by a board of directors, with Crown Prince Mohammed Bin Salman serving as its chairman. The governance structure is designed to ensure strategic alignment with Vision 2030 and effective oversight of the fund’s activities. Recent changes in leadership, including the appointment of new board members and executives, are aimed at injecting fresh perspectives and expertise into the fund’s operations.
These leadership changes are expected to impact investment decisions by bringing new priorities and strategies to the forefront. The PIF’s governance model emphasises transparency, strategic alignment with national goals, and robust risk management.
Social impact and sustainability
The PIF is committed to sustainability and social impact. Investments in renewable energy and sustainable technologies align with global environmental goals and Saudi Arabia’s own sustainability objectives. An example of such an investment is the green hydrogen power plant in Neom, which aims to produce up to 600 tons of carbon-free hydrogen daily, potentially eliminating five million tons of CO2 emissions annually.
The size of this massive entity comes at a cost, like any investment firm. The PIF faces several challenges, including geopolitical risks, market volatility, and the complexities of managing a vast and diverse portfolio. Ensuring sustainable and profitable investments while mitigating risks is a key challenge for the fund’s leadership.
Looking ahead, the PIF is poised to continue its role as a major driver of Saudi Arabia’s economic transformation. With a focus on innovation, diversification, and global expansion, the fund is set to play a pivotal role in shaping the country’s economic future.
The Public Investment Fund of Saudi Arabia represents a critical component of the country’s strategic efforts to diversify its economy and strengthen its global economic position. Through its investments across various sectors and geographic regions, the PIF is not only contributing to Saudi Arabia’s economic growth but also positioning itself as a key player on the global stage.