How PE will help Saudi’s PIF achieve its vision

Saudi Arabia’s Public Investment Fund wants to become a global investment powerhouse and is counting on private equity to reach that goal.

“If you look back at our history, it was in Saudi equities, fixed income, loans, with very small returns,” Yasir Al Rumayyan, managing director at PIF, said during the Saudi-US CEO Forum 2018 in New York last week. “If you look at our portfolio previously, it was all conventional investments.”

Although more than 90 percent of PIF’s portfolio is still in conventional investments, that will significantly change in the next decade.

PIF had $150 billion in assets under management about a year ago, which went up to $250 billion as of September. Its goal is to get to $400 billion by 2020 and $2 trillion by 2030.

To that end, the Saudi government will continue to inject cash into PIF while PIF has no obligation to return a dividend to the government. Proceeds from the initial public offering of state oil giant Aramco, which is expected to launch later this year, will also significantly help achieve this target, delivering at least $100 billion depending on the size of the IPO.

But one of the main ways to grow AUM will be through increased performance, and that’s where private equity – including infrastructure and venture capital – comes in.

Return targets have historically hovered around 3 percent for PIF; it is now aiming for 4-5 percent and achieving higher returns, although Al Rumayyan didn’t disclose them.

PIF has invested $3.5 billion in ride sharing company Uber, has committed $45 billion to mega tech-focused SoftBank Vision Fund, which has raised $93 billion from a handful of investors, and is partnering with Blackstone on a $40 billion infrastructure fund, providing about half of the money.

“All of these companies, if you look at them, they have outstanding growth rates,” Al Rumayyan said. “They’re very disruptive and I think it will add a lot of value to our portfolio. The returns are the main thing we’re considering. We also see the new trends coming to our future and we want to enable some of the new sectors and industries and make them more practical.”

He explained the importance for the kingdom of being on the forefront of technology-related innovations such as artificial intelligence, automation, the internet of things and big data.

To support the fund’s growth, PIF anticipates significantly scaling up its team, hoping to double it to about 480 employees by the end of the year. It also plans to open new offices in New York and in San Francisco, possibly followed by new outposts in the UK and in Japan.