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LONDON – When electric automaker Lucid Motors announced that it had raised $ 1 billion in financing last month, the deal appeared at first sight to be a new megadone of Silicon Valley.
But it is the identity of the main investor: the Public Investment Fund, or P.I.F., a branch of the Saudi government to invest the kingdom's oil wealth.
The investment Lucid is only the latest operation of the multi-billion dollar spending frenzy of P.I.F. over the last two years, which highlights the evolution and growing ambitions of so-called "sovereign" funds.
Formerly considered primarily as sources of funding for professional fund managers, sovereign wealth funds have become ambitious investors. They have filled their ranks as experienced negotiators and are looking for opportunities to enter into their own markets.
"They have become more and more direct investors," said Michael Maduell, chairman of the Sovereign Wealth Fund Institute, a research group. "They compete more against the Carlyles and Blackstones of the world."
Governments have long needed the means to invest their cash surpluses, especially those countries whose oil reserves have depleted their reserves. Sovereign wealth funds offered a way to deploy this capital to generate income for decades to come.
According to data from the Sovereign Wealth Fund Institute, these funds hold sizeable sums: approximately $ 7.8 trillion as at June 30. The largest in the world, Norway's Global Pension Fund, manages just over $ 1 trillion, more than double what Blackstone oversees.
Initially, many of these funds placed money with professional fund managers. But for the past decade, some government funds have begun to assert themselves as direct investors.
As a prelude to the global financial crisis, troubled banks such as Citigroup and Barclays turned to the Abu Dhabi Investment Authority and the Qatar Investment Authority for cash. And Qatar has gone further by buying assets such as the British department store Harrods and the London financial district of Canary Wharf, as well as European fashion houses. like Valentino and Balmain.
Their ambitions continued to grow in the years following the financial crisis. The 10 largest transactions of these funds have all been completed over the past decade, according to the Sovereign Wealth Fund Institute. The largest ever sale of Logicor's store operator by Blackstone to China Investment Corporation was about $ 14 billion.
To help identify opportunities, many funds have formed their in-house investment teams, engaging experienced rainmakers from leading international banks and private equity firms.
For example, between 2012 and 2016, Boon Sim was head of the Americas at Temasek and led Credit Suisse's global mergers and acquisitions. During the past year, the P.I.F. hired Alireza Zaimi, chief banker at Bank of America Merrill Lynch, and Abdulmajeed Alhagbani, who headed HSBC's asset management team in Saudi Arabia.
To attract senior executives, some of these funds have proposed competitive compensation systems compared to Goldman Sachs and K.K.R., far from the salaries normally paid for positions primarily of civil servants.
The incentive for sovereign wealth funds to make direct investments depends on many factors.
The first is simple: these funds are inundated with money, far beyond what professional investment firms can use.
"The main motivator is that they want to invest more in the private sector than private equity firms can," said Francesco Rossi Ferrini, JPMorgan Chase Sovereign Wealth Advisory Team Leader. for Europe, the Middle East and Africa.
The direct conclusion of transactions also helps sovereign wealth funds to save on fees charged by fund managers.
But for some funds, direct investment is of strategic importance. Take the Saudi fund, P.I.F. His renewed ambition is inseparable from Vision 2030, the vast plan of economic reform presented by Crown Prince Mohammed bin Salman, de facto ruler of the kingdom. Its investments are aimed at diverting oil from the world's largest oil.
Give the P.I.F. The Saudi government was planning to inject money with the first public offering of Saudi Aramco, the state oil company. The transaction has since been postponed and the government has ordered Saudi Aramco to acquire a majority stake in Sabic, a major oil company controlled by the P.I.F. The fund also borrowed $ 11 billion from international banks.
The first investment of the P.I.F. hit the headlines in 2016, with a $ 3.5 billion investment in Uber. The agreement promoted the idea of the Saudi fund as a future investor in leading technology companies. (For Uber, investing has brought both a huge amount of money and an investor who – unlike venture capitalists – can afford to stay for a decade or more.)
Subsequently, investments were made in companies such as Magic Leap, a key player in the augmented reality sector, and a space travel company led by Richard Branson.
The Saudi fund was also at the heart of the recent Tesla scandal. Conversations with P.I.F. In the past year, officials have left Elon Musk, the automaker's general manager, convinced that the fund would fund its efforts to privatize the company. He went on Twitter and announced his intention to buy back Tesla investors – with money for such a "secured" initiative. "But the fund did not take the necessary steps to invest in such a transaction.
One month after the scandal of Mr. Musk, the P.I.F. announced its investment in Lucid.
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