Summer sales: Saudi Arabia’s Public Investment Fund is intent on going bargain hunting
Monday 18th May 2020
Saudi Arabia’s sovereign wealth fund has been incredibly active in this period of economic downturn, acquiring over $7 billion worth of shares in notable companies around the world. The Public Investment Fund (PIF) holds about $10 billion in US-listed equities. Having already invested in Uber, it now has investments of around $500 million in Disney and Facebook, and about $700 million in Boeing. The portfolio seems to be targeting travel and hospitality, targeting companies like Marriott and Booking.com whilst also building a strong presence in the technology sector through investments in Cisco and Broadcom.
This strategic investing is largely due to the PIF’s long term, two-pronged approach: to build a strong international portfolio whilst also investing to decrease Saudi Arabia’s reliance on oil. With oil prices at a new low (with Brent crude prices at $32.50 at the time of writing) and with Saudi Arabia having the 2nd largest oil reserves in the world, reducing their dependency on oil is not only strategic in the short term to help weather the impacts of coronavirus, but it is also beneficial in the long term as the shift towards more renewable forms of energy kicks in. The petroleum sector accounts for around 45% of GDP and 90% of export earnings in the country. However, the downturn in the oil prices and wariness of investors has paid off for the PIF in some respects, as it used the opportunity to buy shares in BP – whose stock price hit a 24-year low. The PIF also previously accumulated shares in European oil companies: Royal Dutch Shell, Total, Equinor and Eni.
The recent plunge in oil prices has encouraged the PIF to find ways to unlock liquidity, with the fund reportedly planning to borrow up to $10 billion by pledging its stakes in SoftBank Group Corp. The fund is said to be in talks with investment banks about a margin loan (a loan that lets you borrow money to invest in approved shares, using existing shares as security), backed up by investments from the SoftBank Vision Fund. Shoring up liquidity helps towards the PIF’s goal to invest more whilst shares are cheap, and it could lead to acquiring more shares in companies that have been hit particularly badly by the pandemic – such as their investment into the cruise operator Carnival Corp.
Trend-setters?
Whilst the PIF has certainly been the most active fund, other sovereign funds in the Gulf such as those of Abu Dhabi and Qatar have been seeking similar investment opportunities, no doubt for similar reasons as Saudi Arabia. The dependency on oil in the region could be changing tides as Qatar’s sovereign fund is borrowing up to $7.6 billion against its stock holdings, already having previously built up assets of more than $330 billion to cushion the impact when oil reserves run out or when oil revenues drop (the current crisis being a perfect example of this).
On the other side of the coin, Norway is planning on spending over $41 billion of its $1 trillion sovereign wealth fund to weather the downturn of the global crude market. The government has plans on using it to compensate businesses for lost revenue and to boost unemployment benefits – a stark difference from the Middle Eastern funds that have been aggressively investing.
Whilst all sovereign wealth funds have been particularly hard hit this year, with Reuters estimating that they made over $67 billion in losses in the first quarter alone, it will be interesting to keep an eye on which funds will recover more strongly in the long term. By playing the cards they are being dealt, the Middle Eastern approach seems to be the likely winner and, despite the region being particularly hard hit economically by the crisis, they are likely to pull through to the other side in a much better position than Europe.
