Saudi Arabia commits $20bn to US focused fund

July 2017 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

July 2017 Issue

Private equity giant The Blackstone Group announced that Saudi Arabia’s sovereign wealth fund has agreed to commit $20bn to a new investment fund aimed at infrastructure projects, primarily in the US.

The commitment from the Public Investment Fund of the Kingdom of Saudi Arabia (PIF) will account for around half of the capital Blackstone has targeted for the fund. However, including potential borrowed money, the new fund could invest more than $100bn in infrastructure projects, the PE firm said in a statement announcing the commitment.

Blackstone president Hamilton E. James said: “There is broad agreement that the United States urgently needs to invest in its rapidly aging infrastructure. This will create well-paying American jobs and will lay the foundation for stronger long-term economic growth. Blackstone has the talent, scale and experience to be an effective private sector partner in filling the massive infrastructure funding gap. We thank PIF for its strong endorsement of the United States and its vote of confidence in our country and Blackstone in making this investment.”

A political and economic issue for many years, infrastructure networks in the US have been largely neglected and are in desperate need of investment. Indeed, the country’s crumbling and archaic transport networks have attracted considerable criticism. The American Society of Civil Engineers (ASCE) once again gave US infrastructure a disappointing rating in March 2017: a D+. The country’s failure to address the deficiencies in its infrastructure networks is likely to cost the country trillions of dollars, according to the ASCE. Gross domestic product could take a $4 trillion hit between 2016 and 2025 because of lost business sales, rising costs and dented incomes if the country continues to under-invest in its infrastructure networks.

President Trump championed infrastructure investment during his election campaign and has vowed to invest around $1 trillion in the coming years. However, this would not be enough to bring the ASCE grade up to a B. While details of the administration’s infrastructure plans have not been formalised, private investments, such as those likely to come from the Blackstone fund, are a welcome development.

H.E. Yasir Al Rumayyan, managing director of PIF, said: “The Public Investment Fund’s international investment strategy is built upon establishing strong global partnerships and identifying opportunities to maximise sustainable returns for the people of Saudi Arabia. We look forward to partnering with Blackstone, a recognised leader with a strong record of achievement across its extensive infrastructure projects. This potential investment reflects our positive views around the ambitious infrastructure initiatives being undertaken in the US as announced by president Trump, and the strategic opportunity for the Public Investment Fund to achieve long-term returns given historical investment shortfalls.”

PIF, which was established in the 1970s, was created to help manage the Saudi government’s investments at home and abroad. The fund is beginning to diversify the government’s holding away from oil, which, given the difficulties experienced in the space over the last few years, is an important move.

Blackstone has been a key player in infrastructure, investing more than $40bn into projects globally over the past 15 years. The firm did indicate that the investment by PIF was not entirely based on recent political developments in the US; PIF and Blackstone were said to have started discussions about partnering up in May 2016. However, the announcement of the commitment was timed to correspond with president Trump’s visit to Saudi Arabia, where his ability to attract foreign investment into the US was touted. Given the size of the funding deficit for US infrastructure projects, public-private partnerships will be hugely important in the coming years.

Richard Summerfield