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Domestic focus may limit clout of $2tr Saudi fund

DUBAI: Saudi Arabia aims to create the world’s biggest sovereign wealth fund, a $2 trillion behemoth that can throw its weight around global markets, but the fund’s growth abroad is likely to be slowed by its responsibility for aiding the economy at home.

Building the Public Investment Fund (PIF) into “the largest fund in the world by far” is a cornerstone of radical economic reforms announced by Deputy Crown Prince Mohammed bin Salman last month to cut the kingdom’s reliance on oil.

The PIF, founded in 1971 to finance development projects in Saudi Arabia and until now little known abroad, is to grow from 600 billion riyals ($160bn) to over 7 trillion riyals, helping make Riyadh a global “investment power”, he said. The biggest sovereign fund so far is Norway’s, worth $852bn.

“There will be no investment, movement or development in any region of the world without the vote of the Saudi sovereign fund,” Prince Mohammed told Al Arabiya television.

Under the plan, Saudi Arabia would partly live off returns earned on the PIF’s foreign investments, which would help offset Riyadh’s loss of oil revenues due to low crude prices.

But the PIF is also being pressed into service for a second purpose: it is to use its money to revitalise the Saudi economy and create jobs by developing new industries and pushing through stalled multi-billion dollar development projects.

The PIF will “help unlock strategic sectors requiring intensive capital inputs. This will contribute towards developing entirely new economic sectors and establishing durable national corporations,” the reform plan reads. For example, the government will transfer ownership of Riyadh’s floundering King Abdullah Financial District to the PIF, sources told Reuters.

The PIF may also get involved in areas such as mining, shipbuilding and developing six industrial cities. The government says it is examining ways to salvage the industrial city scheme, plagued for a decade by delays and a lack of enthusiasm among potential tenants.

The result, say bankers and consultants familiar with Saudi official thinking, is that in the initial years at least, the PIF’s resources and management attention are likely to focus more on domestic projects than foreign markets. The PIF did not respond to requests for comment.

Sven Behrendt, head of German consultancy GeoEconomica, said the PIF’s foreign role, where it would face pressure to maximise returns by taking risks, would contrast with its domestic role as a strategic investor, where returns would be secondary as projects could not be allowed to fail for political reasons.

“If you look around the world, you will see there are only a few funds that have this double mandate. Usually it’s one or the other.