PIF to cut international portfolio by third in push for domestic investment, governor says

The sovereign wealth fund plans to invest in AI and make the kingdom the global leader in future technology

Yasir Al Rumayyan, governor of the Public Investment Fund, speaking at the Future Investment Initiative in Riyadh on Tuesday. Reuters

Saudi Arabia's Public Investment Fund plans to make cuts to its portfolio of foreign assets and focus more on domestic markets as it looks to establish the kingdom as the global hub of artificial intelligence, its governor said on Tuesday.

The sovereign wealth fund, with $930 billion of assets under management, plans to slash its foreign portfolio by about a third as “there is a big paradigm shift in how PIF is deploying investments”, Yasir Al Rumayyan said.

“Initially we had less than 2 per cent investments internationally and that was when we had $150 billion in [assets under management] … and it grew all the way up to 30 per cent. Now our target is to bring it down to between 18 and 20 per cent,” he told delegates at a panel discussion at the Future Investment Initiative conference in Riyadh.

“Having said that, the absolute dollar amount is still growing because our AUMs are still growing. So, it is down as a percentage term, but dollar value is rising.”

Mr Al Rumayyan was joined for the panel discussion on geoeconomics by global corporate leaders including Moderna chief executive Stéphane Bancel, head of BlackRock Laurence Fink, Citadel founder Kenneth Griffin, Sanofi boss Paul Hudson, president of Alphabet and Google Ruth Porat, Facebook co-founder Eduardo Saverin, as well as chairman of Blackstone Group Stephen Schwarzman and Carlyle co-founder David Rubenstein.

Paradigm shift

The initial investment days are behind the PIF, when global investors sought its funds to invest outside the kingdom. That trend has changed to co-investments in the kingdom and the PIF has created many joint ventures with its international partners, he said.

“In the beginning, a lot of people [would] come for our money and wanted it to be invested, but that trend has shifted over the years. We are now more focused on the domestic economy and we have achieved so many things,” Mr Al Rumayyan said.

Over the past eight or nine years, the projects the sovereign fund has invested in have hit operation and commercial stage. Now there is a discernible difference in the perception of the kingdom as an economy and a destination of investment from how it was viewed in 2015 and before.

“We have established 92 new companies: Neom, Red Sea Development, Aalat … all of these companies are big investors in new sectors that were not in existence in Saudi Arabia,” he added.

In August, the PIF said its assets under management jumped 29 per cent to 2.87 trillion Saudi riyals ($765 billion) in 2023 as it solidified its Saudi holdings and diversified its international portfolio of assets.

The annualised returns for the sovereign fund since 2017 rose to 8.7 per cent in 2023, up from 8 per cent a year earlier, the fund said in its annual report.

The shareholders' returns were “primarily driven by investments within Saudi Arabia, as well as international portfolio growth, as the PIF continued to forge strong partnerships and enhance shareholder value”, the fund said at the time.

Saudi Arabia, which is diversifying its economy away from oil, continues to maintain its appeal as a foreign direct investment destination, despite a sharp increase in geopolitical uncertainty in the region, which underpins the fact that Vision 2030 programme is working.

“The tailwinds are much stronger than the headwinds,” Khalid Al Falih, the kingdom’s Minister of Investment, said during a separate panel discussion.

Saudi Arabia’s non-oil economy has grown consistently between 4 to 5 per cent annually since 2017, including last year, and 540 companies have committed to establish their regional headquarters in the kingdom. This is ahead of the government's target of 500 by 2030.

“I'm glad to announce for the first time that we've reached 540 by this morning and some of them are the major multinational companies that are with us today, and they will be individually announcing their RHQs,” Mr Al Falih said. “This is an opportunity for companies to come and partner with us and address the challenges that we want to address.”

AI Investments

Among the new economy sectors, AI has emerged as the biggest focus area and the PIF aims to deploy more capital on investment opportunities in the sector, Mr Al Rumayyan said.

“As part of our AI investment, like most of the people around this table, we have ongoing discussions or potential discussions to invest in AI,” Mr Al Rumayyan said. “The reason why we are investing in AI is that Saudi Arabia is very well positioned to be a global hub and not just be a regional hub in the AI sphere,” he said. The abundance of land and the low cost of energy in the kingdom complements its ambitions as a global AI leader, he added.

The PIF governor said AI could contribute nearly $20 trillion to the global economy by 2030, with the role of the future tech as an economic driver becoming a benchmark of national power. “Artificial general intelligence marks the next frontier, promising machines capable of problem-solving and driving productivities that will impact every sector from health care to energy,” he told FII delegates.

Saudi Arabia has plans to create a fund of about $40 billion to invest in AI, and the PIF has held discussions with US venture capital company Andreessen Horowitz and other financiers to drum up interest, according to media reports in March.

Impact on capital markets

Mr Griffin of Citadel said AI has already made a telling impact on global financial markets and it will continue to drive growth in major companies across industries. The future tech is going to be “one of the dominant themes”.

Investments in AI are blossoming. “I really do believe this is going to be powering the equity markets for the coming years,” he said.

“It will present some social issues around the world, but the global theme is the need to deploy more capital to rebuild our infrastructure, to build out AI. It's going to be powering a real, tremendous investment movement, to be powering large-capitalised companies.”

With AI adoption, BlackRock, one of the biggest asset managers in the world, managed to add more than $5 trillion in assets, but did not have to add employees to match that growth.

“We actually added four multiple points in margins, and all of that is the utilisation of more technology,” Mr Fink told delegates. “I think to service our clients as well as we're doing, to have the trading volume that we are instituting, it just requires more and more technology. And then the algorithms we're using now, in terms of getting different indications, different mechanisms to invest, is really helping the power of the firm.”