Sovereign fund stands to be world's largest, fueled by Aramco;
new winners are likely
By Maureen Farrell
With less than two weeks' notice last month, more than a dozen
of the top global money managers accepted a dinner invitation
halfway around the world. The host: Yasir al-Rumayyan, head of
Saudi Arabia's Public Investment Fund, which is set to become the
world's largest sovereign-wealth fund in coming years -- and
potentially their biggest benefactor, if the kingdom's state-owned
oil company goes public as planned.
The guests, which included Blackstone Group LP Chief Executive
Stephen Schwarzman, Carlyle Group LP's David Rubenstein, SoftBank
Group Corp.'s Masayoshi Son and Robert Smith of Vista Equity
Partners, mingled over nonalcoholic drinks in a large indoor
courtyard lined with palm trees at Mr. al-Rumayyan's Riyadh home.
At dinner, the private-equity potentates sat at small round tables
with Saudi financiers, executives and government officials.
The meeting, which came a day ahead of President Donald Trump's
visit to Saudi Arabia in late May, shows the potential of the
Public Investment Fund, or PIF, to reshape the private-equity
industry and create the next round of winners and losers in its
continuous quest for assets. PIF could be the single biggest source
of cash for buyout firms in the coming years, private-equity
officials say.
"This was a coming-out party for the PIF," said Bill Ford, CEO
of private-equity firm General Atlantic, who attended the dinner
and a subsequent round table. "Every global investor should have a
relationship with Mr. al-Rumayyan."
The head of PIF was previously best known for being CEO of a
Saudi affiliate of French bank Crédit Agricole and a champion of
the kingdom's golf scene.
Saudi Arabia has said it would transfer the assets of
state-owned colossus Saudi Aramco into its sovereign-wealth fund
when it takes the oil company public, part of a plan to overhaul
the Saudi economy and reduce its dependence on oil.
The oil market was jolted Monday, after Saudi Arabia, along with
the United Arab Emirates, Bahrain and Egypt, severed relations with
Doha and said they would close off routes to the country after
accusing Qatar of backing terrorism.
Estimates of Aramco's value range from $1 trillion to $2
trillion or more, and the kingdom has said it would seek to sell 5%
of the company to the public, possibly next year. That could
balloon PIF's assets, which already stand at more than $180
billion, according to the Sovereign Wealth Fund Institute, and put
more than $50 billion of additional cash at its disposal.
At least 20% of the IPO proceeds are expected to be invested in
private equity, according to a person familiar with the kingdom's
plans.
For those who manage to secure a slice of the bounty, it won't
come for free.
PIF is eager to secure more of a say in how funds it backs
operate than a traditional limited partner would have, people
familiar with its plans said. It could have input in what types of
investments these buyout funds make or have veto power over new
investments. The sovereign-wealth fund will also likely pay
significantly lower fees than other investors do, according to
industry experts, because of its size and because it often makes
the first seed investment, giving it more leverage.
There is also no guarantee the expected windfall will
materialize, as the Aramco IPO is highly complicated and may not
ultimately take place at the expected size or time frame.
Sovereign-wealth funds have become increasingly important for
private-equity firms, accounting for 19% of their institutional
capital as of January, according to research firm Preqin. That is
up from 9% in 2013. At a conference last year, Carlyle's Mr.
Rubenstein predicted that within five years, sovereign-wealth funds
could overtake public pension funds as the most significant source
of capital for private-equity firms, which according to Preqin had
$842 billion available for investment as of March.
"Any time a sovereign-wealth fund decides to increase its
allocation by even 1%, it's significant," said Andrea Auerbach,
head of global private investment research at Cambridge Associates,
which advises institutions that invest in private equity.
Blackstone and Japan's SoftBank are the first big winners in the
race to secure the mountain of Saudi assets that is up for grabs.
Shortly after the dinner, PIF announced it will commit $20 billion
to Blackstone's new $40 billion infrastructure fund, which is to be
the biggest ever raised. It has pledged $45 billion to SoftBank's
Vision Fund, the world's largest technology-investment pool.
Mr. Schwarzman and other Blackstone executives spent more than a
year meeting with Mr. al-Rumayyan and senior Saudi officials
courting the commitment, according to people familiar with the
discussions.
PIF is in discussions to anchor more funds outside
infrastructure and technology, people with knowledge of its plans
said.
Private-equity funds could ultimately come back to Saudi Arabia.
Carlyle's Mr. Rubenstein predicted during the round table that
private-equity assets would increasingly flow toward the developing
world. Numerous attendees expressed interest in investing in Saudi
Arabia and offered advice to Mr. al-Rumayyan on what regulatory
changes would make it easier for them to be active there.
Matt Jarzemsky and Nicolas Parasie contributed to this
article.
Write to Maureen Farrell at maureen.farrell@wsj.com
(END) Dow Jones Newswires
June 06, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.