Two groups of individuals stood in front me in line in the lobby of a Public Investment Fund (PIF) building in Riyadh. The first, getting checked in by the receptionist, were Americans and employees of one of the largest alternative asset management companies in the world, clear from the logo emblazoned on their carrier bags and on a business card handed over by one of them to the receptionist. The second group, comprising two men just next to me, were British. One of them held a presentation document in his hand. All I could make out were a few words from the subtitle on the cover page: ‘UK Build-to-Rent Platform of Scale’.
We were all there to see one of the world’s largest sovereign wealth funds (c.USD 700bn AUM) and, in this particular case, the engine behind the Kingdom’s Vision 2030, Saudi Arabia’s vision for the future. For the most part, the scene was very similar to that of the lobbies of sovereign wealth funds throughout the region, such as the Abu Dhabi Investment Authority, Kuwait Investment Authority or Oman Investment Authority: lots of sharp-suited General Partners (GPs) and corporate executives, holding immaculate pitchbooks full of perfectly designed charts and diagrams, eager to fly back home to their respective countries with capital commitments from the Arab institutions. I’d witnessed this same view many times across the GCC over the years. But it was different now. Different with Public Investment Fund (PIF).
What quickly sinks in when coming to Saudi now is that the days are gone when one would simply fly into the Kingdom and ask for millions, or billions, for an opportunity outside the region. Especially if it brought little beyond a financial return to them. Not that returns alone aren’t sufficient. For most investors they are. But PIF is not most investors. And Saudi Arabia is not most countries.
Saudi Arabia is going through a massive economic diversification process. And here, diversification is unlike what many in finance will expect. That is, a key component of asset management. In other words, put a few eggs in this basket, some there and some more over there. Part of Vision 2030 is to actually create the baskets themselves. The transformation of the country will require the creation of verticals from the ground up.
Like other countries in the region, Saudi has had a history of importing. Bring in goods and services from abroad, set up a rep office, structure a JV and so on and so forth. Things will change going forward. PIF wants to bring it all in-house, tailored to the local market.
And we’re talking multiple sectors and industries, not just the usual suspects like energy, defence, waste management, building materials, etc. Last month, over a lunch in London, a senior member of the PIF strategy team spoke to me about an investment category called the ‘Culture Bucket’. ‘Historically, Saudis would get on a plane to see an opera, get specialised medical treatment, do some retail therapy, somewhere like Harrods,’ he said. ‘These represent outflow of economic opportunity. We want to reverse that flow. Create product and services in the Kingdom to address demand.’ When you think about it carefully, it’s clear that PIF isn’t solely preoccupied with the running of an investment programme. It’s focused on building a sustainable, socio-economic powerhouse.
This of course should not dissuade anyone from regarding the Kingdom as a place to do business. On the contrary, Saudis are very much open to opportunities and want to capture the best ideas and talent. Make no mistake, Vision 2030 requires the participation of global businesses. But partnerships will not be one-sided and need to be of mutual benefit to both parties. In that spirit, investment decisions will partly be weighed by job creation domestically. If you’re a company with an innovative product and go to Saudi Arabia asking for capital to set up a plant somewhere, say, in Europe, then don’t expect PIF to get excited. Propose creating facilities in the Kingdom and hiring locals and that’ll be a good start. In short, you – the international business – need to offer as much added local value as possible. This is how you stand out.
Another thing that makes PIF quite unique is the energy it brings to the table. The sort you see from young, ambitious and optimistic individuals. Perhaps unsurprising, given 70 per cent of Saudi Arabia’s population is under the age of 30. A ‘let’s do it’ attitude. During the UK–Saudi Business, Trade and Partnership Forum which took place London recently I saw this play out. An attendee raised their hand and asked a member of PIF’s senior team, ‘How do we get in touch with PIF and start a dialogue with you?’ Acknowledging the question, the PIF representative paused for a second and said, ‘Everyone from my team, stand up now.’ A number of individuals around the conference room got up on their feet. ‘Take a look at these five individuals. Approach them after this talk and collect their business cards. They will be your point persons.’ I’ve never seen a senior SWF official make such a move. To make it easy to connect with them. Alas, the way some SWFs behave gives the impression they’re purposely making it difficult for you to reach them.
To fund managers, financial institutions and corporations out there, keep the following in mind: PIF/Saudi wants to build the knowledge in-house rather than just have the other party only keep it to themselves. If I were you, I’d consider opening an office, hiring and training locals and making it more than just a token rep office. Establish manufacturing facilities in the Kingdom. Tap into the abundance of local talent.
On my flight back to London I bumped into one of the British guys who was in line in front of me in the PIF lobby. We stood waiting to use the toilets. ‘How was your trip?’ I asked. He smiled and said: ‘We need to rework our strategy.’ What he meant was clear. It was back to the drawing board to focus on what they will bring to the Saudis and how it will fit Vision 2030.
Saudi Arabia has a very bright future. And to be a part of that journey you need to be a part of Vision 2030.
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