Why the PIF’s latest investments support the Kingdom’s strategic goals
When the going gets tough the tough go shopping is an old saying that we have all used on occasion, especially the fairer sex. Nowhere is that truer than looking at the acquisitions of various sovereign wealth funds (SWF). All have looked at investment opportunities amid the dramatic decline of equity markets and economies due to the coronavirus crisis.
Across the board all SWFs have tried to find bargains among high-quality listed equities and strategic opportunities among other asset classes, particularly in private equity. Some of them have made announcements of investments and all eyes were on Saudi Arabia’s Public Investment Fund (PIF) because of the sheer amount of investments. Until March 31 the PIF announced investments worth between $7 and 8 billion.
When investments become this sizable scrutiny is their companion. The aim of SWFs is to ensure the welfare of their countries for generations to come, particularly countries with natural resource-based economies that are trying to invest outside of their country and in diversified sectors.
In this sense the recent acquisitions by the PIF make sense. While investing roughly $1.5 billion in BP, Shell and Total might at first glance go against that maxim, it still makes sense. It shows confidence in the oil and gas sector going forward. The three European oil majors also have very clear strategies focusing on the renewables’ sector and looking at how to survive in a world where oil becomes less important. This is compatible with the Kingdom’s Vision 2030 reform plan, which also wants to wean Saudi Arabia off its total dependence on oil.
Other investments also make sense in light of Vision 2030. The PIF invested just over $2 billion in Carnival Cruises, Marriott International, Walt Disney, Live Nation Entertainment, Starbucks and Booking. com. These investments also have to be seen against the backdrop of Vision 2030 with its aim to develop tourism as a major contributor to the economy. Giga-projects like NEOM and Qiddiya require access to entertainment and hospitality expertise too.
Other big-ticket items are also strategic, for instance the $714 million stake in Boeing. The Gulf Cooperation Council is located on a peninsula at the crossroads between East and West, where air travel will remain strategically important. In this context it makes sense to be an anchor investor in one of the world’s two big airplane manufacturers in order to be part of the aviation story and its technological advancements. The latter is particularly important for Saudi Arabia as an oil producer.
The investments in major US banks — Citi and Bank of America — also make sense. In the last few weeks both Warren Buffet and Fed chairman Jerome Powell have warned not to bet against the US economy. They have a point as banks are a litmus test for the overall economy and as the transmission mechanism from monetary policies into the real economy. Both Citi and Bank of America are stalwarts of the US banking sector.
Furthermore, as long as the Fed opposes negative interest rates, their business model is under far less pressure than that of their European and Japanese competitors. As a side note, it was a Saudi anchor investor that saved the then Citibank from all but certain bankruptcy during the savings and loan crisis in 1990.
There have also been various investments in technology, which go hand in hand with the PIF’s focus on AI and robotics which was highlighted during last year’s Future Investment Initiative.
Back to the investments. It is an old stock exchange imperative to buy cheap and sell at high prices. It is also an old wisdom that he who invests in value and for the long term will fare best in the long run.
• Cornelia Meyer is a business consultant, macro-economist and energy expert.