Saudi Arabia’s sovereign wealth fund swung to a profit in 2023, driven by a rally in global markets that also helped cement its position as one of the biggest state-backed investors in the Middle East.

The Public Investment Fund (PIF) made US$25 billion from investment activities last year, compared to a loss of US$11 billion in 2022, according to financial statements published late Monday. Dividend income and better performance from third-party funds also helped boost performance.

The PIF controls US$925 billion in assets, making it slightly smaller than Abu Dhabi Investment Authority, the region’s largest sovereign fund, according to consultancy GlobalSWF.

The PIF’s rebound follows a turnaround in financial markets, with the S&P 500 Index returning 24% in 2023. The fund cashed in on a rally in tech stocks and slashed its holdings of US equities including stakes of more than US$600 million each in Amazon.com Inc, Microsoft Corp and Salesforce Inc during the first quarter of this year.

Its cash reserves have risen to US$65 billion from US$15 billion as of September, which was the lowest level since 2020. Amid dwindling reserves and concerns of a funding crunch, the PIF had evaluated a range of options to raise cash - including accelerating debt sales and lining up equity offerings in its portfolio companies, Bloomberg News reported in March. 

Under Governor Yasir Al Rumayyan, the PIF has been transformed from a sleepy domestic holding company into one of the world’s largest and most active state-controlled investors in less than a decade. As the main entity tasked with driving Crown Prince Mohammed Bin Salman’s plan to diversify the Saudi economy, it has been making aggressive bets at home and abroad on new industries and technologies.

The scale of the PIF’s ambitions, which include a US$40 billion artificial intelligence fund, a US$100 billion electronics manufacturing investment vehicle and vast new developments across Saudi Arabia expected to cost trillions of dollars, has put pressure on both it and the kingdom.

Government officials have begun to say that some of the projects will have to be delayed or scaled back. Most significantly, ambitions for the desert development of Neom have been reduced, people familiar with the matter told Bloomberg News in April.

Still, with plans to boost annual investments up to US$70 billion a year from 2025, from around US$40 billion, the PIF has turned to debt markets to help boost firepower. Total borrowing by the fund has risen to US$125 billion compared to US$85 billion a year earlier, according to the report.

Unlike funds in neighbouring Abu Dhabi and Qatar, the PIF has not been able to rely on large cash transfers from budget surpluses as Saudi Arabia has forecast deficits for the next few years. Instead, the kingdom has financed the PIF through asset transfers. The fund now holds 16% of Saudi Aramco, giving it access to a chunk of stable income from the US$125 billion in annual dividends the oil giant pays out.

Other sovereign funds have also reported improved performance in 2023. Norway’s US$1.6 trillion fund returned to profit as stock markets soared, but it was hit by losses in its unlisted real estate portfolio. Abu Dhabi’s Mubadala Investment Co meanwhile said five-year returns rose to 10.3% from 8.5% a year earlier.

  - Bloomberg