Saudi wealth fund resets priorities after decade of heavy spending

Saudi Arabia’s near-$1tn Public Investment Fund has launched a new five-year investment strategy that will narrow its focus to six areas, including tourism and manufacturing, as it reprioritises its spending.

The sovereign wealth fund unveiled the strategy after launching a review of its vast array of projects and portfolio companies as it takes stock of a decade-long spending splurge at home and abroad.

The plan was drawn up before the US-Israel war against Iran, which has spread across the Gulf. But the conflict has added to the financial pressures on Saudi Arabia as it seeks to balance huge spending commitments with tightening liquidity and a widening budget deficit.

Asked by a Saudi-owned television channel if the conflict would affect the PIF’s investments, its governor Yasir al-Rumayyan said it reviews “all investments and deals because of war or other reasons”.

“I can’t tell you I will cancel this investment, or get into another investment,” he told Al Arabiya on Wednesday. “It is a dynamic [situation] with or without war. But of course the war would add more pressure to reposition some priorities.”

The PIF’s reassessment of its priorities chimes with the Saudi government’s narrative over the past two years of the need for “fiscal discipline” as it has sought to recalibrate its spending. This has led to some PIF projects being scaled back and delayed, including parts of its Neom mega-project.

As well as its swath of development projects, the PIF also needs to meet a string of deadlines as it prepares to host Expo 2030 and the football World Cup in 2034.

Gulf states have borne the brunt of Iran’s retaliation during the war, as it has hit energy facilities and in effect closed the Strait of Hormuz, which the region depends on for exporting oil and gas.

While Saudi Arabia has been able to export up to 7mn barrels a day through a pipeline to the Red Sea, the conflict undermines Crown Prince Mohammed bin Salman’s ambitions to project the kingdom as a trade and tourism hub and attract foreign investment.

Capital Economics forecast that the country’s economy could contract by as much as 6.8 per cent this year because of the war.

The focus of the PIF, which is spearheading Prince Mohammed’s plans, has increasingly shifted to the domestic economy, with about 80 per cent of its portfolio focused internally.

The six “ecosystems” identified in the new strategy are: tourism and entertainment; urban development; advanced manufacturing; industrials and logistics; clean energy and renewables’ infrastructure; and Neom, Prince Mohammed’s flagship project.

The six areas of investment compare with 13 “strategic sectors” outlined in the previous five-year strategy unveiled in 2020.

Rumayyan told the FT in February, when the new strategy was initially slated for launch, that the PIF would focus its investments on those “ecosystems”, adding: “The must-haves will be prioritised; the good to have will be phased — [plans are] not going to be stopped or halted.”

He noted that when Prince Mohammed unveiled his development plans a decade ago, the kingdom had not been awarded Expo and the World Cup. Those events, with their hard deadlines that have to be met, have caused a rethink of priorities.

“Expo wasn’t there, the World Cup wasn’t there. Many other things came into us,” Rumayyan said. “So we have to look into it differently.”

Yet Rumayyan, who has overseen the decade-long transformation of the PIF from a virtually dormant entity into one of the world’s highest-profile sovereign wealth funds, was adamant that the pace of spending would not slow.

“I don’t think we are shifting away from what we are doing, but we are bringing more efficiency to our deployment of the capital,” he said. “What I want everyone to understand, we are not scaling back on our international investments.”

The PIF said on Wednesday that the war had not changed that sentiment.

Over the past two years the PIF has become more strategic and less opportunistic, bankers say, with the fund no longer perceived as a source of easy money. But in recent months it has flexed its financial muscle, leading a consortium to acquire Electronic Arts for $55bn and backing Paramount’s hostile bid for Warner Bros Discovery.

Those investments are going ahead despite the impact of the war on the kingdom, according to the PIF.

The PIF will continue to pursue big-ticket investments “if it makes sense to us from a thematic investment standpoint”, Rumayyan said.

The fund said that between 2021 and 2025 it had invested more than $199bn in the kingdom after committing to pump $40bn a year into the Saudi economy as Prince Mohammed, its chair, tasked it with driving his plans to diversify the country’s economy.

The funding was used primarily to establish new companies and develop five so-called gigaprojects including Neom; sports and entertainment development Qiddiya; ultra-luxury Red Sea resorts; and Diriyah, a vast residential and retail complex in Riyadh.

The fund has made no similar investment commitment in the new strategy that runs to 2030.

Over the past decade the PIF has relied on government cash injections, dividends from portfolio companies, debt and asset transfers from the state, notably tranches of shares in Saudi Aramco, the energy company in which the PIF has a 16 per cent holding.

Saudi Arabia has reported one budget surplus since 2013 — in 2022 when oil prices passed $100 a barrel. But it continued spending on diversification plans that Riyadh deemed critical to preparing for a non-oil future and breaking traditional cycles of boom and bust.

Much of the PIF’s future spending is expected to come from some of its main portfolio companies, such as new carrier Riyadh Air, AI company Humain and Savvy Games Group.

When Rumayyan took over the fund in 2015, it had fewer than 40 staff and $150bn in assets under management — largely passive holdings in Saudi companies. Today it employs about 3,000 people and has a target of reaching $2tn in assets by 2030.

The fund says it has achieved an annualised total shareholder return of more than 7 per cent since 2017, while contributing the equivalent of about 10 per cent of Saudi Arabia’s non-oil GDP from 2021-24.

The effects of the review of the PIF’s projects are already being felt by companies that have benefited from the fund’s spending as developments are paused or delayed, notably in Neom.

A futuristic linear city called The Line — the centrepiece of the huge coastal development — is to be radically scaled back, while ski resort Trojena is also being downsized and will no longer host the 2029 Asia Winter Games as planned.

Neom’s focus is to shift to industrial sectors, including data centre hubs as part of Prince Mohammed’s drive to project the kingdom as a global AI leader.

“We will continue doing the infrastructure and the logistics in Neom, but . . . it’s not as time-sensitive as the other ecosystems,” Rumayyan said in the February interview.

Sceptics have questioned whether the PIF is making the best use of the kingdom’s finite resources and whether the maths add up, even as the fund’s assets swell. Rumayyan, however, remained bullish.

The “best way not to make any mistakes is to do absolutely nothing”, he said.

“What do you do if things didn’t work out as planned, you have to go back and review three things. Do you have the right proposition? Do you have the right people, and do you have the right infrastructure or systems? And that’s what we always go back to.”