Sovereign Wealth Funds Embrace Their Growing Ambitions

LONDON — When Lucid Motors, an electric carmaker, announced that will the idea had raised $1 billion in financing last month, the transaction appeared at first blush to be just another Silicon Valley megaround.

although what made the deal stand out was the identity of the lead investor: the Public Investment Fund, or P.I.F., an arm of Saudi Arabia’s government charged with investing the kingdom’s oil fortune.

The Lucid investment is usually just the latest deal within the P.I.F.’s multibillion-dollar spending spree over the past two years, which highlights the evolution along with growing ambitions of so-called sovereign wealth funds.

Once regarded mostly as sources of money for professional money managers, sovereign funds have matured into ambitious investors. They have stocked their ranks with experienced dealmakers along with are searching for opportunities to strike their own deals.

“They’ve evolved into becoming more direct investors,” Michael Maduell, the president of the Sovereign Wealth Fund Institute, a research group. “They are competing more against the Carlyles along with the Blackstones of the globe.”

Governments have long needed ways to invest their surplus cash, particularly those nations whose petroleum reserves gushed money. Sovereign funds offered one way to deploy that will capital to generate income for decades to come.

Such funds hold vast sums of money: roughly $7.8 trillion as of June 30, according to data coming from the Sovereign Wealth Fund Institute. The biggest within the globe, Norway’s Global Pension Fund, manages just over $1 trillion, or more than double what Blackstone oversees.

Early on, many of these funds placed money with professional money managers. although starting a decade ago, some government funds began to assert themselves as direct investors.

within the prelude to the global financial crisis, troubled banks like Citigroup along with Barclays turned to the Abu Dhabi Investment Authority along with the Qatar Investment Authority for cash infusions. along with Qatar went further, buying up assets like the British department store Harrods along with London’s Canary Wharf financial district — along with European fashion houses like Valentino along with Balmain.

Their ambitions have continued to grow within the years since the financial crisis. The 10 biggest deals by such funds were all struck within the past decade, according to the Sovereign Wealth Fund Institute. The biggest on record, Blackstone’s sale of the warehouse operator Logicor to the China Investment Corporation, was for roughly $14 billion.

To help hunt down opportunities, many of the funds have built up their in-house investment teams, hiring experienced rainmakers coming from top international banks along with private equity firms.

coming from 2012 to 2016, for example, Temasek’s head of the Americas was Boon Sim, who had been Credit Suisse’s head of global mergers along with acquisitions. During the past year, the P.I.F. has hired Alireza Zaimi, a senior banker at Bank of America Merrill Lynch, along with Abdulmajeed Alhagbani, who led HSBC’s Saudi asset management team.

To attract top managers, some of these funds have offered compensation packages competitive with Goldman Sachs along with K.K.R., a far cry coming from the salaries normally paid for what are essentially civil-servant positions.

There are several factors behind sovereign funds’ push to make direct investments.

One is usually simple: These funds are awash in money, more than what professional investment firms can put to work.

“The key driver for them is usually that will they want to invest privately more than what private equity firms allow them to do,” said Francesco Rossi Ferrini, the head of JPMorgan Chase’s sovereign wealth funds advisory team for Europe, the Middle East along with Africa.

Striking deals directly also helps sovereign funds save on fees charged by money managers.

although for some funds, direct investments are of strategic import. Take the Saudi fund, P.I.F. Its newfound ambition is usually indelibly linked to Vision 2030, the expansive economic reform plan outlined by the kingdom’s de facto ruler, Crown Prince Mohammed bin Salman. Its investments are meant to wean the globe’s biggest petrostate away coming from oil.

To give the P.I.F. the firepower the idea needs for such a task, the Saudi government planned to infuse the idea with cash coming from an initial public offering of Saudi Aramco, the state-owned oil company. The transaction has since been postponed along with the government has directed Saudi Aramco to buy a majority stake in Sabic, a big oil company controlled by the P.I.F. The fund also has borrowed $11 billion coming from international banks.

The P.I.F.’s first headline-grabbing investment came in 2016, when the idea invested $3.5 billion in Uber. The deal helped promote the idea of the Saudi fund as an up-along with-coming investor in hot technology companies. (For Uber, the investment brought both a huge slug of cash along with an investor that will — unlike venture capital firms — can afford to stay on for a decade or longer.)

Afterward came investments in companies like Magic Leap, a ballyhooed player within the augmented-reality industry, along having a space travel venture run by Richard Branson.

The Saudi fund was also within the middle of Tesla’s recent scandal. Conversations with P.I.F. officials over the past year left Elon Musk, the carmaker’s chief executive, convinced that will the fund would likely finance his effort to take the company private, along with he went on Twitter along with posted his intentions to buy out Tesla investors — with money for such a move “secured.” although the fund had not actually taken the steps required to invest in such a transaction.

A month after Mr. Musk’s scandal broke, the P.I.F. announced its investment in Lucid.