Saudi Arabias Public Investment Fund Signals End of Easy Money Era

For the better part of the last decade, Saudi Arabia has attracted dealmakers, bankers, and asset managers seeking capital, largely due to its ambitious sovereign wealth fund embarking on a multibillion-dollar global spending spree. However, as the kingdom reassesses its priorities and the $925 billion Public Investment Fund (PIF) shifts its focus to significant domestic commitments, the perception of Saudi Arabia as a source of easy money is fading.

Fund managers and bankers have noted that Saudi officials are imposing more conditions on mandates, such as requiring the hiring of local employees and allocating funds for investments in domestic companies and projects. Bankers report that Riyadh is now more inclined to see reinvestment within the kingdom before committing new funds. The PIF’s traded stocks in the U.S. fell from approximately $35 billion at the end of 2023 to $20.5 billion by the end of June, which included a reduction in its stake in BlackRock. Companies are also less frequently seeking capital from Riyadh compared to earlier times.

This shift marks a stark contrast to the earlier years of the PIF’s transformation from a dormant state holding company with around $150 billion in assets in 2015 to one of the world’s most active sovereign funds. This overhaul, initiated by Crown Prince Mohammed bin Salman, aimed to guide Riyadh’s trillion-dollar plans for economic diversification and global projection. The PIF rapidly increased its foreign exposure, making high-profile investments, including $45 billion into SoftBank’s Vision Fund in 2016 and $20 billion into a Blackstone infrastructure fund the following year.

The surge in activity coincided with tightening liquidity globally, positioning Saudi Arabia and other Gulf states as key funding sources. This was further amplified by the spike in energy prices following Russia’s invasion of Ukraine, resulting in a budget surplus for Saudi Arabia in 2022, its first in nearly a decade. However, subsequent cuts to oil production to stabilize declining crude prices have impacted government revenues, leading to a return to budget deficits amid substantial financial commitments for development plans.

Bankers have reported that some deals have fallen through, although Saudi officials assert that the kingdom’s ambitions remain intact, with ongoing work on various megaprojects. Finance Minister Mohammed al-Jadaan indicated that Riyadh would “adjust” its plans as necessary, extending some projects while downscaling others.

An insider at the PIF noted a shift towards more strategic investments, contrasting with the previous approach of quickly deploying funds. While there may be exceptions in sectors like manufacturing, artificial intelligence, and technology, global investments are expected to diminish over the next two to three years. As the PIF’s subsidiaries, including the new airline Riyadh Air and gaming entity Savvy, aim to meet their targets, much of the investment activity is now being conducted by these entities.

Bankers have also mentioned a shift from investment deals to financing, as the government and PIF raise debt—Riyadh has already raised about $37 billion this year. This evolution in the PIF’s strategy reflects a broader reassessment of priorities, signaling the potential end of the era of easy money from Saudi Arabia.