Arab News, Sun, Apr 28, 2024 | Shawwal 19, 1445
PIF set to have $2 trillion in assets under management by 2030: report
Saudi Arabia:
Saudi Arabia’s Public Investment Fund is poised to reach $2 trillion in assets
under management by 2030, propelling it from 5th to 2nd place globally among
sovereign wealth bodies, according to Global SWF.
The organization that monitors activity in this
area stated that the PIF’s rapid ascent can be attributed to the fund’s focus
on direct investments, emphasis on key sectors of the Saudi economy,
dedication to sustainability through leading investments in renewables and
green assets, and active participation in the digital economy.
The institute’s 2024 annual report disclosed that
in 2023, PIF took the lead as the top investor among all sovereign wealth funds,
allocating $31.6 billion across 49 deals – a 33 percent increase from the prior
year.
This progress elevated the fund by 10 positions
between global sovereign investors in new capital deployed within a mere three
years.
In just eight years since its restructuring, the
Saudi fund has become a dominant force both domestically and internationally,
with the aim of advancing Vision 2030 and achieving the status of the world’s
largest sovereign wealth fund by the end of the decade.
In March 2024, PIF’s assets under management
surpassed $925 billion, up from $700 billion at the end of 2022, securing its
position as the fifth largest global sovereign wealth fund, after the government
transferred an additional 8 percent stake in Aramco to its portfolio.
The fund strategically delved into co-investments
and forged joint ventures to bolster Saudi Arabia’s drive for economic
diversification.
Noteworthy examples include partnerships with
mining giant Ma’aden, tire makers Pirelli, and car manufacturer Hyundai.
This was alongside an agreement with Baosteel and
Aramco for the construction of a steel mill.
The report highlighted that unlike numerous
sovereign wealth funds that frequently choose co-investing as their primary
strategy, both globally and in the Gulf region, PIF stands out with a strong
preference for direct investments in private equity.
Specifically, it targets critical sectors of the
Saudi economy, including sports and leisure, tourism, and gaming, as well as
construction, and heavy industry.
Despite the clear advantages that co-investing
offers – such as enhanced due diligence, favorable fee terms, and portfolio
diversification – some sovereign investors may shy away due to concerns about
deal visibility and relinquishing transaction control to other government funds.
According to the report, PIF stood out from other
funds due to its substantial domestic investments, which significantly impacted
its international investment capacity relative to other funds.
In 2023, Saudi Arabia’s sovereign wealth fund saw
an 18 percent growth in its US equities portfolio, driven by rising stock
values.
PIF maintained a passive approach, keeping major
positions unchanged.
According to the report, its largest holding
remained a 63 percent stake in Lucid Motors.
PIF initiated its investment of $1 billion in the
electric vehicle rival to Tesla back in 2018, and following Lucid’s initial
public offering three years later has continued to infuse capital into the
company.
This included an injection of $2 billion in June
2023, and Lucid is on course to commence EV production in Saudi Arabia by 2025.
PIF’s US-listed portfolio includes $8.1 billion in
gaming companies such as Activision Blizzard, Electronic Arts, and Take-Two,
reflecting the Kingdom’s plan to invest $38 billion to become a hub for this
sector as part of Vision 2030.
In its report, Global SWF discussed the challenges
encountered by sovereign investors in recent years and the corresponding
solutions they implemented in 2023 to enhance the resilience of their
portfolios.
One significant challenge involved addressing the
decarbonization of the global economy. This was tackled through the introduction
of a new sustainable investment strategy, shedding light on “climate alpha.”
This typically refers to investments or strategies that aim to address global
warming and its associated risks and opportunities.
This could include investments in companies or
projects that are focused on renewable energy and efficiency, sustainable
agriculture, clean transportation, and other environmentally friendly
initiatives.
Sovereign investors showcased their dedication to
sustainability during COP28, highlighted by the UAE’s launch of a $30 billion
climate-focused fund, supported by BlackRock and fellow state-backed wealth
funds. The goal is to access these areas while also greening existing black
assets through de-carbonization.
Meanwhile, Saudi Arabia has taken a leading role
in direct investments within the EV and automotive sectors. As well as its stake
in Lucid, the Kingdom launched its own EV carmaker, Ceer, in a joint venture
with Taiwan’s Foxconn.
Further partnerships include collaborations with
Tasaru for component localization, Hyundai for a car plant, and Pirelli for tire
manufacturing.
According to Global SWF, sovereign investors
directed a record $26.1 billion towards green assets in 2023, prioritizing
investments in the energy transition, including renewables, battery storage, and
EVs.
Gulf sovereign wealth funds contributed nearly
half of this sum, leading the charge in driving the energy transition agenda.
The report also underscored another challenge
encountered by sovereign funds, which is market volatility and the risks
stemming from geo-economic fragmentation.
To tackle this issue, fund investors have embraced
a more comprehensive total portfolio strategy. This strategy integrates alpha
and beta return drivers, merging top-down and bottom-up analyses, with a
significant emphasis on diversification.
By adopting this holistic approach, investors gain
a thorough understanding of their investments, facilitating more informed
decision-making, enhanced risk management, and the opportunity to optimize
portfolio performance by focusing on the unique attributes and dynamics of each
component within the portfolio.
The rise of disruptive artificial intelligence was
also addressed in the report, which noted it represents a significant risk for
sovereign investors as it can lead to rapid changes in industries, markets, and
investment landscapes.
AI-powered technologies can impact traditional
business models, alter consumer behavior, and introduce new competitive
dynamics. To address this challenge, one proposed solution by sovereign
investors is to integrate AI-powered portfolios into their investment
strategies.
By incorporating AI technologies into portfolio
management, sovereign funds can leverage advanced algorithms and data analytics
to gain valuable insights.
AI-powered portfolios can analyze vast amounts of
data in real-time, identifying trends, patterns, and market signals that may not
be immediately apparent to human analysts. This can lead to more accurate risk
assessments, better market timing, and enhanced investment decision-making.
Additionally, AI can enable sovereign investors to
automate certain aspects of portfolio management, such as rebalancing, trade
execution, and risk monitoring. This not only increases operational efficiency
but also allows for more agile responses to changing market conditions.
According to the report, 2023 saw sovereign wealth
funds adjusting their real estate investments amidst concerns of global interest
rate hikes and a potential property bubble.
Despite an overall softening in the market, some
segments, such as data centers and affordable housing, saw growth as fund
investors aligned with emerging megatrends. Data center investments surged by
150 percent to $7.6 billion in 2023, indicating a strong focus on
future-oriented assets.
This shift reflects a move from traditional
investments to a more sophisticated strategy, exemplified by PIF’s forming
partnerships to develop data centers.
The report flagged up that in 2023, the GCC region
– led by the Abu Dhabi Investment Authority, Abu Dhabi’s Mubadala, ADQ, PIF, and
the Qatar Investment Authority – saw a record surge in sovereign capital to $4.1
trillion in assets under management, with transactions totaling $82.3 billion.
Projections indicate these sovereign wealth funds
could reach $7.6 trillion in assets by 2030. This growth, according to the
report, is fueled by high oil prices and a maturing investment landscape,
driving economic diversification with growth forecasts of 3.6 percent and 3.7
percent for GCC nations in 2024 and 2025.
In this region, two distinctive sovereign wealth
fund management approaches were highlighted by Global SWF.
Abu Dhabi’s strategy involves the establishment of
multiple SWFs, each with specific missions overseen by different royals. Saudi
Arabia, on the other hand, centralizes its investment and strategic efforts
under PIF, aligned with the government’s overarching vision.
Further, its leaders have no problems in
announcing grand plans for the fund, using it in its name to buy football clubs
or golf leagues, and in sharing its finances publicly given its fundraising
efforts, in a rather refreshing fashion, the report said.
The institute presented updated projections in the
State-Owned Investors 2030 section, factoring in the industry’s recovery in
assets under management in 2023.
It anticipates that public pension funds and
central banks will reach $54.9 trillion by 2025 and $71 trillion by 2030. By
then, Norway’s Norges Bank Investment Management, Saudi’s PIF, and Japan’s
Government Pension Investment Fund could lead the table with over $2 trillion in
assets under management each.