Saudi Arabia’s $360 billion sovereign-wealth fund, the Public Investment Fund, or PIF, has been aggressively putting its money to work in investments around the world. The governor of the fund, Yasir al-Rumayyan, wants to wean the kingdom off its reliance on oil, which accounts for nearly two-thirds of its revenue.
Al-Rumayyan, 50, was the head of an investment bank in Riyadh. Now, he is also the chairman of Saudi Aramco and a top adviser to Crown Prince Mohammed bin Salman. Al-Rumayyan recently gave a rare interview to Barron’s. It has been edited for length and clarity.
Barron’s: We’re doing this over Skype now, but do you come to New York often?
Yasir al-Rumayyan: Actually, we’re opening up an office there, and another office in London. I’m a frequent visitor to the U.S.—New York, Miami, San Francisco. Some of our portfolio companies are there, so I do go quite often. The new office is going to be in the General Motors Building [on Fifth Avenue], a whole floor. Hopefully, that office is going to open in either the late fourth quarter or early in the first quarter of 2021. In London, it’s going to be in a building that we got from the Saudi government. I was looking at the different designs today, so hopefully we will have it manned by the first quarter of 2021.
They’ll be meeting with portfolio companies and assessing new investments there?
It’s going to be sourcing deals, [managing] continuous relationships, and monitoring some of these deals.
In the first quarter, the fund invested pretty heavily in some U.S. equities, like Marriott International [ticker: MAR] and Walt Disney [DIS], that were out of favor at the time. What was the rationale behind that?
Two things. Heavily is a relative term. What looks big for some funds might not be as big when it comes to the PIF, because our assets under management are $360 billion-plus today, up from $150 billion back in 2015. So we more than doubled up. As to the second question, why now? Because we thought with a great crisis, you have great opportunities. The year 2020 is one of those years everybody thought was going to be different than the previous decade or so. Since 2009, we’ve been in one of the longest bull markets in the history of the equity markets.
People were expecting that the market would have to correct. With the pandemic, with the trade war, with the uncertainty, you saw lots of different sectors going down excessively. The pandemic is not going to last forever. It’s something that will eventually end, just like any other pandemic in the history of mankind. That’s why we started deploying funds into not only the U.S. markets, but also in global markets. We were in Italy, we were in China, we were in France, we were in the U.S., we were everywhere.
These markets were really going down to levels unseen in a long time. And we started buying in. And we went into these investment opportunities in three different ways: opportunistic, strategic, or for rescue financing.
When you say rescue financing, are you referring to loans to companies that were having troubles?
Yeah, it could be anything. Rescue financing could be loans, it could be convertibles, it could be primary issues.
Can you give me a sense of a company where you made a rescue financing investment?
One I remember is Carnival [CCL]; they issued a convertible. And we were looking at different private companies, too.
In the second quarter, it looks as if you sold a lot of those positions and bought some exchange-traded funds. Why?
We went into some of the companies, and we made huge profits, so we thought, this is it for us. Some strategic positions that we thought could add some value back to the Saudi economy, we left them there. So that was the reason we got in and the reason for our exits. But our exit doesn’t necessarily mean that we’ve exited from the market. If we see any other opportunities, definitely we would consider them.
Generally, $10 billion to $20 billion of your investments end up being revealed in public U.S. filings. How do we understand the rest of your investments? How much do you spend in Saudi Arabia, for instance?
Historically, we were only in Saudi Arabia. We started in 1971 and invested for developmental purposes only. In 2015, we changed our strategy. The board was changed, even the reporting lines were changed. We did a full diagnostic. What have we been doing in the past decades? We started with benchmarks—what are other long-term investment funds and sovereign-wealth funds doing? And what do we want to do? We looked at the diagnostic, the benchmark, and we saw the gap.
And what did you decide on?
We came up with six pools of investments. Two of them are international, and four of them are domestic. The four domestic are Saudi equity, which includes mature investments. There’s also sector development, which goes into new sectors that either are underdeveloped or nonexistent. I’ll give some examples—waste management. There were no rules. There were no companies in Saudi for waste management. We worked with the government to get the rules and regulations and laws in place. And we created our first company in waste management. Same thing is applicable in entertainment—movie theaters. We came in, we worked with the government, and we didn’t leave it exclusively for us. We asked the government to open it up for everyone. Today, I think there are seven or eight different movie theater companies. And they’re all doing extremely well, opening up in different towns and cities around the kingdom.
The third area is called giga projects. And the fourth is real estate. The difference between real estate and giga projects is that real estate goes into projects by themselves. The giga projects are more like ecosystems. And what do I mean by ecosystems? It’s going into empty plots of land. Nothing is there. It’s not close to towns or cities. And we create the whole thing, starting from scratch when it comes to the laws, rules, and regulations, when it comes to the infrastructure that we need to bring in, when it comes to the massive planning, and when it comes to the optimal capital structure and how to get third-party investors.
There are two international pools. One is the diversified portfolio. It’s like your typical international investment fund, where we basically get third-party managers to manage some of our funds and some of our small investments here and there. And then we have a strategic international portfolio, where we have the likes of the SoftBank Vision Fund, the Blackstone Infrastructure Fund, and Uber Technologies [UBER]. Some of our international strategic investments are there, too.
And if you have over $360 billion invested in the fund, what’s the breakdown as far as these different kinds of domestic and international investments?
Initially, it was 98% in Saudi and less than 2% international. Today, it’s about 82% Saudi and about 18% to 20% international. Ideally speaking, the strategic asset allocation that we want to have is 25% international versus 75% domestic.
Not everyone is open to taking money from a sovereign-wealth fund. How do you deal with that? What’s your pitch to companies?
We don’t have much resistance from most of our partners. All partners really appreciate our work with them. We’ve seen maybe a case or two that was based not on investment decisions, but some other decisions.
The fund has a big position in Uber, which has been up and down during the pandemic. What are your thoughts about that business right now?
I’m really not sure if I can comment, since I’m a board member, but as an investor we like the company, we’ve been there for a long time now—since, I think, 2016 or 2017. If you look at the impact of Uber in the kingdom, it has created about 150,000 jobs for Saudis. We like what the investment brought into the world, not only to Saudi Arabia—how they’ve disrupted positively the service markets and are catering to everyone, while making the cost more affordable for a lot of people. If you put all of this together, I think Uber is one of the great investments that we’re in.
They’ve talked a lot about transitioning to autonomous vehicles. Do you see that happening in the next decade, the next five years? What do you think the timeline is?
The autonomous-vehicle initiative has been carried out by a number of different competitors. And unfortunately, those competitors are not talking to one another. They’re using different technologies, trying to see what is the prevailing technology. Some people use radar, infrared, laser. So we have to all wait and see what would prevail for the auto makers and for the likes of Uber or the e-commerce players that would like to have a better, more efficient service at the same time with a lower cost. When do I think it’s going to come? I mean, in 2016, they were talking about three years. Now we’re in 2020, and still it’s not materializing. And the problem, I think, is not only the technology, but the regulations. In places like Neom [a high-tech city being built in Saudi Arabia as a giga project], for instance, I think it would work fine because we can cater the infrastructure to autonomous vehicles.
You also have a large investment in the SoftBank Vision Fund. What’s your assessment of its investment process? There have been highs and lows. There has been criticism of its WeWork investment, for instance.
I’m a board member of the SoftBank Group [9984.Japan], too, not only an investor in the SoftBank Vision Fund. And we have great respect and admiration for Masayoshi Son, who is the chairman and CEO of SoftBank and the force behind the SoftBank Vision Fund. We think that most of the investments that SoftBank has participated in make perfect sense.
Now, some of the plays, as you said, didn’t work out as expected, maybe some of them for valuation purposes, maybe some didn’t have the right execution capabilities to achieve what was originally asked for. At SoftBank, where they invested in about 85 different companies, definitely you’re going to have some really good percentage of these companies as unicorns. And that’s what we really are looking at. To have these unicorns make up for some of the losses and the companies that lack either the vision or the execution capabilities.
Is Masa guiding everything very directly? How are you involved? Is it mostly like, “We trust him”?
The SoftBank Vision Fund started with an idea. We liked the idea. They have somewhere between 400 to 500 professionals working there. The sourcing might be driven by Masa most of the time. But it’s what comes after the sourcing that really counts. And that’s why they have professionals who are working with these companies, and to see how they kind of align some of the portfolio companies together. We have representation in the compliance committee, we have an advisory role, and we attend the investment committee, but we cannot vote because we are limited partners. But we have some rights that we typically wouldn’t have. We can veto any transaction that we don’t like if it goes above $3 billion. If we veto, it’s not only us, but the whole fund cannot go into this. We have opt-out rights. Anything we don’t like, we can opt out and we don’t participate in. And we have many other rights, especially with governance.
How is the PIF different from other sovereign-wealth funds?
Other sovereign-wealth funds are focused on one vertical: either domestic development or international investments. We want to have both and get them aligned. Our international investments are aligned with some of our portfolios in Saudi, either in sector development or real estate projects. We’re not your typical financial investor. We bring value, not only to the companies that we’re invested in, but also to the companies [in Saudi Arabia]. We always like to enhance the performance of our companies, while catering to the development in Saudi.
As you say, you’re fulfilling two missions: investing overseas and helping develop the domestic economy. So you have companies that are racing to win global market share, like Uber. And then you have Saudi Arabian companies looking to create business in the kingdom. Is there some overlap?
Uber is not the best example, but I can tell you what we’ve done with Uber. We were supporting them with the government, not only in Saudi Arabia but also with the governments of the Middle East in some of their acquisitions. And that’s what we brought to the table.
But I can tell you about another of our companies in the U.S.—Lucid Motors. I think it’s going to be the best electric-vehicle company in the world. They just announced that their charge range is 500-plus miles, which is more than 130 miles more than the second best. We’ve put close to $1.5 billion into this company. We changed the board, and we helped them put their manufacturing facilities in Arizona. Pre-Covid-19, we were targeting the fourth quarter to have commercial production. Now, it’s going to be in the first quarter of 2021.
In the second stage, we are going to open the markets for Lucid in Saudi Arabia, we’re going to have their manufacturing facility in Neom, most likely, or maybe some other location, and we can give them some kind of offtake for the domestic purchases from the government, automobile procurement, and they can immediately hit the ground running.
Where does your expertise on electric vehicles come from?
That’s part of our governance. Our management looks at each one of these companies that are in our portfolio, and they see what skill sets are needed. The PIF staff has grown from 40 people in 2016 to over 900. I think by year end, it is going to be more than 1,000. By 2025, It’s going to be more than 2,000, hopefully, with all of the offices and the recruitment that we are doing. We are working with some of the best headhunters around the world, in New York and California and Europe and Asia. And we get the subject-matter experts. So in the Lucid example, we have the head of international investment as a board member, we have Andrew Liveris, formerly from Dow Chemical, as the chairman, and we have an industry specialist. We deal with all of the advisers and consultants that we can put our hands on to help these companies go to the next level. We work with them on the strategy, and we monitor their performance continuously.
In 2018, Elon Musk said that he was going to take Tesla [TSLA] private, and he said that he had the money from Saudi Arabia. Was there a Tesla investment that you were considering?
We had an investment in Tesla, and we got out of this investment. We had some talks with Musk, but I really cannot comment on it. This issue is sensitive, especially since Tesla is a listed company.
Do you expect to invest in more wide-ranging investment funds like SoftBank?
We did that with Blackstone Group [BX]. We committed $20 billion to the largest infrastructure fund in the world, because we think that the U.S. needs a lot of investments in infrastructure. So we partnered up with Blackstone for 40% of their fund. We like to partner with some really experienced asset managers with good track records. Remember, we have a lot of funds, and we need to deploy these with the right partners. It has to go through diligence and negotiations and discussions and dinners and lunches. If you look at most of the asset managers that we are dealing with, we are the top one or two investor. We don’t like to put in $50 million or $100 million. We like to be the top investor, or one of the top two investors, in that fund. And that’s the case right now.
With Blackstone, are you directly involved in the investments?
Yeah, we are really close to Blackstone. We discuss everything before they do it because we’re a cornerstone investor in the fund. Steve Schwarzman is a good friend of mine, and I have the greatest respect and admiration for his track record and him as a person. As I said, we’re not your typical limited partner. When we go into these big-ticket items, we always get different rights, and these rights ensure governance, ensure the investment process, and give us the opportunity to co-invest with them in different projects and investments.
Does much of the money for the fund come from Aramco proceeds? And at a time when oil prices are low, does that affect the future cash flow for the fund?
The Aramco initial public offering was one of the capital injections that came into the PIF, but we have many other sources of cash. The first source that we always rely on is the dividends that we have from our portfolio companies that have to be reinvested. Then, we have government injections, and these injections could be through cash or in-kind, and the in-kind participation could be companies, or it could be land. Today, the land bank that we have is second to none, I don’t think any other entity in the world has the land that we have.
Neom, for instance, is 26,000 square kilometers [16,000 square miles]. That’s the size of a country. On our books, it shows [as being worth] one riyal. One riyal is about 27 to 28 cents. So we’re very conservative in that regard. Red Sea [another development project] is 46,000 square kilometers; in our books, that shows as one riyal. We have many other lands in Mecca, which is like one of the highest real estate values in the world. We still have it at a very conservative valuation. So, all of these things, once it gets operational, it’s going to have an amazing lift to the valuation of the fund’s assets under management. And at the same time, it could be an excellent mechanism for us to finance some of our projects.
So that would be land you would sell for real estate development?
I won’t say it’s only real estate development, it’s creating an ecosystem. We call them giga projects. And there’s a reason why we call them giga projects, because they’re way bigger. It’s huge. It’s something that you haven’t seen in recent history. Once we start monetizing these projects, we’ll have a lot of cash inflows.
BP [BP] just said that it thinks demand for oil has already peaked. It may not recover in terms of demand after the pandemic. Do you agree with that?
It’s all a guesstimate, right? So BP is guesstimating that oil has reached its potential. I don’t think that’s true. You can hear many other analysts and the way they’re projecting how oil demand will be. If you look at the rigs shutting down in the U.S., in the short term, it’s because of supply surpassing demand. But in the longer term, most of these companies are not investing in capital expenditures. So, if they’re not investing in capex, that means you would have fewer oil fields and less supply. And if that’s the case, demand will shoot up while supply is going down, and then we will have higher prices. That’s why we would like to continue our capex programs at Aramco, because we see the need for doing so.
Given your reliance on oil now, a lot of people are wondering if Aramco can pay the dividend. Would that affect the PIF, too?
I don’t think that’s the case, because remember, only 1.5% of the float is to shareholders other than the government. And if you look into the prospectus, there was a very clear formula that, in case the $75 billion dividend policy cannot be met by the company, the pro rata of the 75% would go to the 1.5% and the government would have less dividend yield.
If someone traveled to Saudi Arabia in 10 years, what might they be surprised by?
The land of Saudi Arabia is just amazing. It’s like a big secret. Everybody thinks Saudi Arabia is all desert. Even us. We always thought that it’s all desert. It’s not. It has some amazing sites. The people of Saudi Arabia, most of us are really great people. Of course, you have the super sweet and the super wicked, but most of the people are really good people. The population of Saudi is leaning toward the younger generation. Generation Y and newer generations—I think these generations are more global generations.
So, in 10 years time, I think most of the people you’ll see in Saudi Arabia, they’re more global citizens. You cannot tell them apart from the people that you see in New York or London or Mumbai or anywhere else in the world. So, they’re going to be amazingly surprised by the people, by the proposition that the Saudis have to offer to others, like companies, infrastructure, quality of life.
We have an amazing environment and ecosystem. We have the Red Sea; it’s about 2,000 kilometers long. We don’t want to ruin it. We want to have ecofriendly tourism. And that’s part of our offerings and the Red Sea projects and Neom, and many other projects. So, what we would like to do is to get the best out of the world to add on top of it and to start from there, not to recreate the wheel over again. That’s what I hope you will see in 10 years, in 2030, in Saudi.
What do you think Western investors should know about the PIF and Saudi Arabia that maybe people don’t understand?
What we need to do is to showcase our performance, our governance, our methodology, our mission, our strategy to the world, to show them what it is exactly that we’ve been doing and what our aspirations are. PIF is becoming the main engine of Vision 2030, which is the vision of the nation. We would like to get more people into Saudi to invest with us. Come to Saudi and invest and you will have many facilities, you will have a good partner. That’s what we need to get across to the others.
Thank you for your time.
Write to Avi Salzman at [email protected]