Saudi prince has big plans, but his giant fund is low on cash

The visit of Saudi Arabia’s crown prince to Washington this week painted a familiar picture: the head of an oil-rich nation cozying up to President Donald Trump and the titans of American industry.

This appearance of wealth is fundamental to Saudi Arabia’s power and image in the United States and at home, where the Saudi government has promised nothing less than an economic transformation for its young population. In the Oval Office on Tuesday, Crown Prince Mohammed bin Salman told reporters, without providing details, that his nation would invest $1 trillion in America.

But a different reality is being whispered in the corridors of power in Riyadh and Wall Street: the kingdom’s vaunted Public Investment Fund (PIF), which Saudi Arabia normally uses to fulfill commitments like the one made this week in Washington, is running short of money for new investments.

That’s largely because Crown Prince Mohammed and his aides have spent a large portion of the country’s wealth on projects that are in financial trouble, and are desperately trying to turn things around, according to 11 people briefed on their operations, including employees, board members, investors and their representatives.

There’s Neom, a vast planned utopian region on the northern tip of the country that was supposed to feature robot workers, a ski resort and crushed marble beaches, but which has faced a series of delays.

Then there are other more conventional projects in the PIF’s ever-expanding portfolio that are still far from being realized, such as a chain of coffee shops with just one store so far and dreams of exporting beans to Austria; a cruise line with one ship; and an electric vehicle startup started three years ago that has yet to deliver a car.

The kingdom still has great oil wealth. However, its production capacity is severely limited by geopolitical agreements to reduce supply and the low price of oil in general. The government is facing a growing budget deficit and taking on debt to fulfill Crown Prince Mohammed’s domestic promises.

Although the PIF says it has nearly $1 trillion in assets, a large portion of its portfolio is tied up in hard-to-sell assets for which no public valuations are available. Its representatives have begun telling international investors that they virtually cannot allocate any more money for the foreseeable future, said six people with knowledge of those discussions.

Unlike some other comparable sovereign wealth funds, the PIF publishes just a page and a half of annual financial data.

A spokesman for the fund, Marwan Bakrali, said it holds $60 billion in cash and similar financial instruments. He described the fund as “very liquid by regional standards.”

Behind the scenes, the PIF is actively restructuring its operations under the watchful eye of the crown prince, said the people briefed, who spoke on condition of anonymity to discuss confidential plans.

The prince fired the head of at least one of his most endangered projects, Neom, according to two people briefed on the matter. Meanwhile, the fund is ferociously cutting internal financial projections for several investments, including a string of luxury Red Sea resorts that are mostly empty.

Its board is also drawing up plans to do things differently in the future, investing in more conventional areas such as publicly traded stocks and bonds, one of the people said. The fund expects to double in size to $2 trillion over the next five years, although it is unclear how much of that will come from investment gains and how much will be new money from the Saudi government.

“As a long-term investor,” said Bakrali, “our investments will be judged over generations, not quarters, and returns will be measured both financially and by economic and social impact.”

Don’t call it ‘Piff’

The world of sovereign wealth funds can be a dull place. The world’s largest, Norway’s $2 trillion Global Government Pension Fund, invests mainly in publicly traded stocks.

Funds from other countries look inward, like India, which is prohibited from investing outside the country.

For much of its history, the PIF was not much different. It was created in 1971, financed by the Saudi government to finance domestic companies such as national banks and electricity utilities.

In 2015, it had about $100 billion in assets, 50 employees, and no name recognition. That March, a new Saudi king transferred control of the entity to his third wife’s eldest son, Prince Mohammed, then 29.

And the prince turned the PIF into a central tool in his concentration of power, so much so that the PIF now says that was the year it was “reborn”.

The prince filled the PIF with government money, took out loans and redirected some of the country’s oil sales (currently estimated by outside observers at $500 million a day) to the fund. He also transferred assets that had been confiscated from political opponents and family members in a so-called “anti-corruption” effort.

The government attributes 1.1 million Saudi jobs to PIF projects, although this claim cannot be independently verified.

The PIF itself now has more than 3,000 employees. Its annual report, released in August, indicates that its revenue increased 25% in the previous year.

The expansion was also huge for Yasir al-Rumayyan, the fund’s governor. A regional banker for most of his career, he said in a podcast interview that Crown Prince Mohammed initially chose him to find candidates to lead the PIF. The prince, said al-Rumayyan, “was not entirely satisfied with the majority” and chose the man who was carrying out the search.

He revels in the role — showing a visitor a photo of his yacht — and goes so far as to sternly correct anyone who pronounces the fund’s name as “Piff” instead of spelling the initials, according to three people who heard him say it.

Al-Rumayyan declined to be interviewed.

On the PIF restructuring, Ahmed al-Khateeb, PIF board member and Saudi Arabia’s tourism minister, characterized the measures as natural steps in Crown Prince Mohammed’s broader effort to reform the Saudi economy.

“You stop, evaluate what went right, what went wrong, and then improve,” said al-Khateeb.

Signs of financial difficulties

An important symbol of the PIF and al-Rumayyan’s influence has been the Future Investment Initiative, nicknamed Davos in the Desert, an annual gathering that brings together thousands of people in the country’s capital.

Historically, among the most popular parties to coincide with the event is a gathering in the palm-tree-lined village of al-Rumayyan, previously owned by a tycoon arrested in Crown Prince Mohammed’s infamous 2017 raid against political opponents.

So when about 100 titans of global finance and industry gathered in his village, there seemed little reason to expect anything other than the usual cavalcade of abu al-karavatta, the dismissive term some locals use to refer to tie-wearing outsiders seeking the kingdom’s money.

Throughout the conference, there was a sense of change, with nostalgic talk about a more prosperous time for Westerners, when it seemed like most businesspeople who visited Riyadh went home with money.

This year, PIF representatives told asset managers about new conditions for future investments: the only way they would receive more money would be in exchange for help redeeming their older investments, according to two fund employees and five investors or their representatives.

In an illustrative deal described by a person who was in talks for a PIF investment, the Saudi fund said it would allocate more money only if more than double the investment was channeled back to private Saudi companies.

The result would be international money flowing into PIF projects, strengthening their status.

Regarding reinvesting PIF money in private Saudi companies, another PIF spokesman, Rupert Trefgarne, said: “There is no requirement. There is certainly an incentive.”

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