The huge losses suffered by several technology companies in recent months have not deterred the Saudi sovereign fund from investing in the sector, as it recently announced an increase in its investments in various technology companies.
What are the fund’s motives for investing heavily in technology companies despite their decline? Is it possible for the sector’s losses to reverse this trend in the near future?
Despite reducing its holdings in US equities by 23% in the first quarter of this year compared to the previous quarter, the Public Investment Fund increased its holdings in 3 technology companies listed on the US Stock Exchange at different rates during the same period. nl. Alibaba Group (about 49%) and PayPal (34%), which provide electronic payment services, in addition to video game company Take2 (102%).
The fund also acquired new stakes in technology companies, led by Meta, the owner of Facebook, during the first quarter of the year. Among the fund’s most recent transactions announced was the acquisition of the Savvy Gaming Group, a subsidiary of the Saudi sovereign fund that specializes in electronic games, for an 8.1% stake in the Swedish Video Game Empressor for $ 1 billion in June.
According to Toby Ellis, Head of Sovereign Assessments for the Middle East and Africa at the credit rating agency Fitch, the Saudi Sovereign Fund has been investing in listed and unlisted companies in various fields from a few years ago to this year.
“The Public Investment Fund hopes that the value of (those shares) will grow over time and support its investment portfolio,” Ellis told the Arabic Zawya website.
He added, “Technology (companies) shares have suffered from a long period of gains so far this year, so it will be interesting to follow the development of the Public Investment Fund’s strategy” during the coming period in light of that change.
Technology companies have been negatively affected by the impact of rising interest rates in addition to the end of the peak of the pandemic and its precautions, which has led to an increase in the profits of many technology companies to record levels over the past two years due to the increased demand for various technological solutions during closing periods.
Meta, one of the companies in which the fund invested during the first quarter of the year, was one of the most prominent technology companies to suffer huge losses, as its shares have lost about half of their value since the beginning of this year.
The fund did not respond by email to Zawya Arabi’s question about the possibility of reducing its investments in technology companies in the near future due to the sector’s losses.
Diversification of the Kingdom Economy
The Public Investment Fund, whose board of directors is led by Prince Mohammed bin Salman, is the fifth largest sovereign wealth fund in the world, with assets of more than $ 600 billion, according to data from the Sovereign Wealth Fund Classification Institute.
The fund, whose economic activity has grown sharply since 2015, aims to increase the value of its assets to 4 trillion riyal ($ 1.2 trillion), double its current value, by 2025, according to the fund’s official website.
The Public Investment Fund has investments in various countries around the world. The fund, which was established more than 50 years ago, aims to have 24% of its assets in world markets by 2025.
According to Ellis, the fund’s investments, both foreign and domestic, reflect the Kingdom’s efforts to reduce dependence on oil by diversifying its economy, as set out in Vision 2030.
“The Public Investment Fund wants to attract foreign investment (to Saudi Arabia) from advanced companies such as the one in which it invests,” the analyst said.
Domestic investment is more important
The fund’s local investments, which represent the bulk of its total investments, remain, according to Ellis, the most important and influential on the Saudi economy.
“This domestic investment will support economic activity and help with real GDP growth and job creation,” he said.
The analyst added, “The Public Investment Fund’s investment portfolio … includes local GIGA projects and companies aimed at developing new sectors of the Saudi economy.”
The term “giga projects” is used to refer to mega projects in Saudi Arabia, especially NEOM, a sustainable city under construction.
“In the longer term, perhaps after 2030, the Public Investment Fund could pay periodic dividends to the government, which will support the non-oil revenue from the budget,” says Ellis.
The fund owns shares in a number of Saudi companies listed on Tadawul, most notably Aramco, STC Telecom and the National Bank of Saudi Arabia. In its latest investments in listed Saudi companies, the fund last May raised Saudi Prince Al-Waleed bin Talal’s stake in the Saudi Kingdom Holding Company, which accounts for 16.87% of the company’s shares, for about 5.7 billion riyal bought, or $ 1.5 billion. .
“The hope is that a well-managed sovereign fund will be more effective in promoting economic diversification than relying on government – led investment,” Ellis said.
“Achieving real economic diversification is very difficult and time consuming,” he added.
(Prepared by: Sherif Tarek, Editing: Yasmine Saleh, contact firstname.lastname@example.org)