What Is the Public Investment Fund of Saudi Arabia?
The Public Investment Fund (PIF) of Saudi Arabia was established in 1971, and is that nation's sovereign wealth fund. It provides financing for productive commercial projects that are strategically significant to the development of the Saudi Arabian economy. The fund complements private sector efforts with additional experience and capital resources.
- The Public Investment Fund (PIF) of Saudi Arabia is one of the largest sovereign wealth funds in the world.
- Established in 1971 by Royal Decree, the PIF has financed many key Saudi projects and companies and provided financial support to projects of strategic importance to the national economy.
- As of 2020, the fund holds more than $360 billion in domestic and international investments.
Understanding the Public Investment Fund of Saudi Arabia
The Public Investment Fund has supported numerous projects in important sectors of the Saudi Arabian economy, including petroleum refineries, petrochemical industries, pipelines and storage, transportation, energy, minerals, water desalination, and infrastructural facilities. It has also participated in the capital funding of a number of bilateral and Pan Arab corporations.
In 2015, Saudi leaders began to take steps toward giving more authority and to the PIF, in alignment with its Vision 2030 objectives. The fund’s current governance consists of a Board of Directors and smaller Board committees. Board roles and responsibilities include strategy and planning; governance, regulation, recruitment and compensation; reporting and monitoring; and investment. Investment decisions center on building a diversified portfolio for Saudi Arabia that aims for long-term, attractive, risk-adjusted returns.
The Public Investment Fund has put in place standardized procedures and guidelines to govern investment decisions, focused on building a diversified portfolio that achieves attractive, risk-adjusted returns over the long-term. As of December 2020, the fund had over $360 billion in assets under management, including public and private Saudi companies as well as international investments.
The PIF and Other Sovereign Wealth Funds
Many countries create sovereign wealth funds (SWFs) to diversify their revenue streams. For example, since the United Arab Emirates (UAE) primarily relies on oil exports for its wealth, its SWF consists of a range of other assets that help shield the nation from oil-related risk. SWFs have enormous economic power. In February 2021, the UAE's fund was worth nearly $580 billion, and Norway’s sovereign wealth fund, the largest in the world, exceeds $1.273 trillion.
Many sovereign wealth funds will look to asset management firms for support in managing their portfolios. These firms, such as Neuberger Berman, Morgan Stanley Investment Management, and Goldman Sachs Asset Management provide their clients (which include many high net worth and institutional investors, such as hedge funds, endowments, pensions, and family offices) more diversification and investing options than they would have on their own.
These investment managers earn income by charging service fees or commissions to their clients. In some cases, managers charge set fees; in others, they charge a percentage of the total assets under management (AUM). For example, if a manager is taking care of an investment worth $6 million and charges a 2% commission fee, it owns $120,000 of that investment. If the value of the investment increases to $10 million, the AMC owns $200,000. If the value falls, so too does the manager’s stake.