How Saudi Arabia Is Building Its $2 Trillion Fund

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Saudi Arabia is stepping up plans to turn its sovereign wealth fund into a global giant. This week, it’s holding a coming-out party of sorts for the Public Investment Fund, which is central to the government’s effort to diversify the economy away from oil, under a plan known as Vision 2030. The Saudis are hosting the titans of investing and finance at a summit that aims to raise the profile of the PIF, which could eventually control more than $2 trillion, according to Crown Prince Mohammed bin Salman. That explains why many eyes will be on — and private jets winging toward — the Saudi capital.

What is the fund up to?

The fund’s deal making has quickened as it seeks to increase the proportion of foreign holdings to 50 percent from 5 percent. The PIF, for example, is starting a $500 million energy-efficiency company and built a $2.4 billion stake in a Riyadh-based dairy farm and food processor. It also established a $1.1 billion fund to support small and medium-sized businesses and is spearheading a $4.8 billion project to redevelop the Jeddah waterfront on the Red Sea — all in the past few months. In May it agreed to commit $20 billion to an infrastructure investment fund with Blackstone Group LP and to invest as much as $45 billion in a technology fund run by SoftBank. These deals followed a $3.5 billion investment in U.S. ride-hailing company Uber Technologies Inc. in June 2016.

Where does the $2 trillion figure come from?

The bulk of that is based on Aramco’s value. While the Aramco holding would vault the PIF ahead of Norway’s $850 billion sovereign wealth fund, currently the world’s largest, most of the PIF’s assets will be illiquid until the Saudis sell Aramco shares. For this reason, some analysts say the $2 trillion figure is misleading. Aramco could have a market value between $1 trillion and $1.5 trillion now that the government has slashed the oil producer’s tax burden to attract investors, analysts at Sanford C. Bernstein & Co. and Rystad Energy AS said in March. But other industry experts say Aramco is worth no more than half, and maybe as little as a fifth, of $2 trillion, based on oil reserves and cash-flow projections under different tax scenarios.

Source Credit: Bloomberg
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