Saudi Arabia’s Public Investment Fund (PIF), one of the largest sovereign wealth funds globally, is raising $7 billion through its inaugural murabaha credit facility as part of its strategy to diversify funding sources and drive transformative investments.
What Is a Murabaha Credit Facility?
A murabaha credit facility follows an Islamic financing structure that excludes interest payments. Instead, both parties agree on contractual terms that comply with Islamic principles.
This financing, supported by a syndicate of 20 international and regional financial institutions, is part of the PIF’s medium-term capital-raising strategy.
“This inaugural murabaha credit facility demonstrates the flexibility and depth of PIF’s financing strategy and use of diversified funding sources, as we continue to drive transformative investments, globally and in Saudi Arabia,” said Fahad Al Saif, head of the global capital finance division and investment strategy at the PIF.
PIF’s Diversified Funding Strategy
The PIF relies on four main funding sources:
- Capital injections from the Saudi government.
- Government asset transfers.
- Retained earnings from investments.
- Loans and debt instruments.
Over the last two years, the PIF has also tapped sukuk issuances to raise capital.
A Global Investment Powerhouse
The PIF manages more than $930 billion in assets, making it one of the largest sovereign wealth funds in the world. According to its annual report, the fund achieved annualized returns of 8.7% in 2023, up from 8% in 2022.
The PIF is a central player in Saudi Arabia’s Vision 2030 initiative, aimed at diversifying the nation’s economy away from oil. It has established 92 new companies, including Neom, Red Sea Development, and Aalat, to drive local growth and innovation.
Shifting Focus: From Global to Local Investments
While the PIF remains active internationally, it has shifted its focus toward the local market. The fund plans to reduce its international portfolio from 30% to a target of 18-20%, according to Governor Yasir Al Rumayyan.
“Initially we had less than 2 per cent investments internationally and that was when we had $150 billion in [assets under management] … and it grew all the way up to 30 per cent. Now our target is to bring it down to between 18 and 20 per cent,” Al Rumayyan said at the Future Investment Initiative conference in Riyadh.
“Having said that, the absolute dollar amount is still growing because our AUMs are still growing. So, it is down as a percentage term, but dollar value is rising,” He added.
Despite reducing its international portfolio as a percentage, the PIF has continued making notable global investments. In December, the PIF and Ardian completed a €4 billion ($4.2 billion) deal to acquire a combined 37.62% stake in Heathrow Airport Holdings.
Challenges in the Global Sovereign Wealth Space
According to Global SWF, the PIF lost its position as the most active sovereign wealth fund last year, with Abu Dhabi’s Mubadala overtaking it as the top spender. The PIF’s investment spending dropped 37% to $19.9 billion in 2023 from $31.6 billion in 2022.
Its US equity portfolio also declined by 24% last year, as the fund sold shares in 18 companies, including Activision Blizzard, Carnival, and Live Nation, valued at about $13 billion.
AI: The Next Frontier
AI has emerged as a key focus for the PIF. Governor Al Rumayyan emphasized Saudi Arabia’s position as a potential global AI hub.
“The reason why we are investing in AI is that Saudi Arabia is very well positioned to be a global hub and not just be a regional hub in the AI sphere,” Al Rumayyan said.
He noted the kingdom’s abundant land and low energy costs as critical advantages for its AI ambitions.
Saudi Arabia plans to establish a $40 billion AI-focused fund, with the PIF actively exploring partnerships with global players such as Andreessen Horowitz.
