For much of the past decade, Saudi Arabia has been a major draw for dealmakers, bankers and asset managers seeking capital as its ambitious sovereign wealth fund went on a multibillion-dollar global spending spree.
But as the kingdom reassesses its priorities and the $925bn Public Investment Fund shifts focus to huge domestic commitments, the era of Saudi Arabia being perceived as a source of easy money is drawing to a close.
“It is ending,” said a senior Dubai-based investment banker. “People are realising it.”
Fund managers, bankers and companies that sought to raise capital in the kingdom are already feeling the affects of the shift.
Money managers say Saudi officials have put many more conditions on mandates, often demanding the hiring of local employees and at least some use of funding for investment in domestic companies and projects.
Others are being told that for Riyadh to commit new funds, it wants to see reinvestment in the kingdom, bankers said.
“It is becoming more of a theme,” an insider at the wealth fund explained.
BlackRock, the US asset manager, did secure $5bn from the PIF to anchor a new investment firm in Riyadh, which it announced in April. But its mandate is focused primarily on developing the kingdom’s capital markets.
The PIF said in a statement to the Financial Times that it had a “robust investment process”, allowing it “to choose partners and advisers who are best suited for each mandate we pursue”.
“Investments made by PIF go through a process of multiple committees and are focused on its key sectors, in accordance with the fund’s mandate and strategy,” it said.
Companies are also no longer beating a path to Riyadh’s door in the hunt for cash at the pace they once were, bankers say.
“Client interest has reduced materially, partly because we are screening more carefully, partly because there’s not been a tremendous amount of success from these efforts and roadshows,” said the Dubai-based banker. “People realise it’s not just about showing up and expecting a cheque.”
It is a marked contrast to the early years of the PIF’s dramatic transformation from a sleeping state holding company with about $150bn in assets under management in 2015 into one of the world’s most active and ambitious sovereign funds.
The overhaul was driven by Crown Prince Mohammed bin Salman, who took over as the fund’s chair in 2015, giving it the task of steering Riyadh’s trillion dollar plans to diversify the economy and project the kingdom on to the global stage.
As it sought to rapidly build up its foreign exposure from virtually zero to its target of 24 per cent of its portfolio, it made waves with a string of high-profile deals, including pumping $45bn into SoftBank’s Vision Fund in 2016 and $20bn into a Blackstone infrastructure fund the following year.
In the years since, it has splashed the cash in a diverse range of sectors from electric-car maker Lucid to its controversial LIV Golf venture, a cruise liner group, mining, sports assets and gaming firms.
It also poured tens of billions into US and European equity markets and injected $2bn into a private equity venture set up by Donald Trump’s son-in-law, Jared Kushner.
The frenzy of activity coincided with tightening liquidity in other parts of the world, marking out Saudi and other oil-rich Gulf states as go-to sources for funding.
That sentiment grew after Russia’s invasion of Ukraine sent energy prices to multiyear highs, creating a boom in the Gulf and helping Saudi post a budget surplus in 2022 — its first in almost a decade.
But since then, the kingdom has slashed oil production in a bid to stabilise softening crude prices. That has hit government revenues and returned the budget to a deficit with Riyadh facing massive financial commitments to fund development plans. Deals have also fallen through, bankers say.
“For the last eight years, Saudi Arabia has gone out to the rest of the world with an open hand of money. Now the fist is clenching and pulling back to the country,” said a London-based investment banker. “It’s part of the maturing strategy. They could not have gone on like this forever.”
According to filings at the US Securities and Exchange Commission, the PIF’s traded stocks in the US fell from about $35bn at the end of 2023 to $20.5bn at the end of June. This includes selling down its stake in BlackRock, and disposing of its holdings in Carnival, the cruise liner company, and entertainment group Live Nation.
Saudi officials say the kingdom’s ambitions have not changed and there is still significant activity taking place with work continuing on a string of megaprojects. But finance minister Mohammed al-Jadaan told a conference in April that Riyadh would “adjust” as required.
“We’ll extend some of the projects, we’ll downscale some projects, we’ll accelerate some projects,” he said.
An executive at a US-based asset manager added that Prince Mohammed was focused on building infrastructure.
“Saudi has shifted meaningfully to domestic growth projects,” the executive said. “They have a bold ambition of what they want to become.”
Another London-based banker said that with the financing outlook “not as comfortable as they want it to be, they’ve got to make some difficult choices”.
“That’s sensible and they are being slightly more mature, they are not going for broke. But it means it’s less lucrative for bankers,” he said.
“The other aspect is the Saudis are sick to the teeth of being treated just as a cash cow, and they are extremely suspicious of fee chasers. They want people to put skin in the game.”
He added that the shift in pace was a “cyclical issue” in line with falling oil revenues, saying the longer-term attraction of Saudi is “still pretty strong because they have a lot of catching up to do from a development perspective”.
The PIF insider said the fund was focusing more on strategic investments in contrast to the early years of its transformation when it was “looking to deploy money quickly in certain areas”.
“There is a pause in terms of spending, definitely global investments are not going to be there in a major way over the next two to three years,” said a Saudi executive. There would be exceptions, he explained, particularly in areas deemed to add value to the kingdom, such as manufacturing, artificial intelligence and technology.
“They are verbalising to banks it’s a very discrete moment,” the executive said.
Spending is continuing at home, with the PIF having a goal of investing at least $40bn a year in the kingdom as it oversees a raft of megaprojects while developing new industries, including tourism, sports, mining and manufacturing.
Riyadh also has to prepare as the host of a string of international events, including the football Asian Cup in 2027, the Asian Winter Games in 2029 and Expo 2030. In addition, it is the sole bidder for the 2034 Fifa World Cup.
Bankers added that the PIF’s subsidiaries — including Riyadh Air, a new airline, Savvy, a gaming entity, and Ma’aden, the mining company — are doing much of the investing themselves as they seek to meet their own targets.
“There’s a lot of activity in the PIF’s portfolio companies, not at the PIF level,” said the Dubai-based banker.
He added that bankers’ “wallets” are going to shift more from investment deals to financing as the government and the PIF raise debt — Riyadh has already raised about $37bn this year.
“It’s not necessarily a change of strategy, it’s an evolution,” he said.
Additional reporting by Eric Platt in New York
