By Yousef Saba and Hadeel Al Sayegh
RIYADH (Reuters) - Saudi Arabia's move to sign co-investment deals with big money managers at a flagship conference this week shows the country's new proposition to attract foreign cash: invest here with the security of Saudi money alongside yours.
Saudi Arabia is in a race to secure more outside money to keep ambitious plans to diversify its economy on track. The country set itself a lofty target to attract $100 billion in annual foreign direct investment by the turn of the decade. It reached about a quarter of that last year.
"The narrative today is local and reciprocity," Francois-Aissa Touazi, senior managing director at French investment firm Ardian, told Reuters. "Saudi Arabia is leading this trend in the GCC. The role of a fund manager is to adapt their approach to this new trend."
Canadian asset manager Brookfield has just announced a new $2 billion Middle East fund to be anchored by the Saudi sovereign wealth fund, the Public Investment Fund, as well has the investment arm of the kingdom's main pension fund.
The deal was unveiled at this week's conference - the annual Future Investment Initiative - known sometimes as "Davos in the desert".
Non-binding deals will see PIF anchor the fund, Brookfield Middle East Partners, with an undisclosed sum and Hassana, the Saudi pension fund's investment arm, put in $500 million alongside the same amount from Brookfield.
"Our whole business is literally pricing risk," Brookfield's CEO for private equity, Anuj Ranjan, said during a panel discussion at the conference.
"That's why it was very important to form this partnership ... with the PIF, because you know that's going to give us a great amount of confidence and help us underwrite that risk better when investing locally in Saudi."
The PIF also signed memoranda of understanding with Japanese financial institutions worth up to $51 billion, including with Mizuho, Sumitomo Mitsui (NYSE:SMFG) Financial Group and MUFG.
The $925 billion sovereign wealth fund also said it was looking to jointly anchor a new fund with the Hong Kong Monetary Authority targeting $1 billion to invest in firms with a "Hong Kong nexus" that are expanding in Saudi Arabia, focused on sectors including manufacturing and renewables.
Foreign direct investment inflows reached 96 billion riyals ($25.6 billion) in 2023, or about 2.4% of GDP, based on government data, reaching the target for that year under the National Investment Strategy, designed to drive the economic overhaul known as Vision 2030.
"PIF is putting more conditions on mandates for fund managers, telling them it wants to see more investment in Saudi Arabia," sovereign fund tracker GlobalSWF said.
"However, PIF has struggled to win co-investment partners in some of its massive investment projects, particularly the array of multi-billion dollar giga-projects that are central to its strategic development initiatives."
The Saudi government communications office and PIF did not immediately respond to Reuters' requests for comment.
Riyadh has taken steps to try to encourage foreign firms to invest more in the country. The government in 2021, for example, said companies seeking to secure state contracts must set up their regional headquarters in Saudi Arabia.
PIF has been increasing its focus on domestic investment as part of its commitment to the country's economic transformation plans. International investments fell to 21% of its assets under management last year from 30% in 2020. It aims to reduce that further to 18-20%, though its foreign portfolio is still expected to grow in dollar terms.
Consulting firm Alvarez & Marsal, which in May said it was incorporating a regional headquarters in Riyadh, is hiring more in the kingdom.
"We've grown six-fold in the last year to nearly 60 now, and we're planning further significant and rapid growth in the kingdom over the next 2-3 years", said Paul Gilbert, managing director and co-head of Alvarez & Marsal in the Middle East.
"The centre of gravity is absolutely shifting," he said. "And we are driving hard to reflect that within our organization as well," he told Reuters.
"I also see the opportunity for many businesses here to show commitment to the kingdom by some sort of co-investment."
($1 = 3.7556 riyals)