Saudi Arabia Transfers 8% of Aramco to Wealth Fund

Saudi Arabia shifted an 8% stake in the oil company it controls, Aramco, to the kingdom’s sovereign wealth pool, the Private Investment Fund. The transfer comes as the nation rejiggers its finances for a capital spending push meant to diversify the economy beyond petroleum.

The PIF now holds a 16% position in Aramco, officially known as the Saudi Arabian Oil Group. Aramco, with a market cap of about $2.1 trillion, is the fourth largest public company in the world. Reuters has reported that Aramco is eyeing selling more shares to the public.

The transfer, announced on Thursday, bolsters the PIF’s plan to underwrite new industries and large real estate projects, such as the futuristic city Neom and massive sports facilities to host the 2029 Asian Winter Games and other athletic events. This ambitious undertaking is called Vision 2030. The financial infusion also would aid the PIF’s possible plans to go public, which in turn would fuel its ability to raise more money.

The PIF now has $700 billion in assets under management, although its current cash dropped to $15 billion, as of September 30, 2023, off 70% from the year before. The PIF’s investment in Aramco can further help the fund’s coffers, owing to the oil company’s generous dividends: Aramco stock yields 3.82%. The fund also has raised $7 billion from two separate bond sales this year. The PIF aims to reach $2 trillion in assets by 2030.

The transfer of Aramco shares to the PIF “is a continuation of Saudi Arabia’s long-term initiatives to boost and diversify the national economy and expand investment opportunities in line with Saudi Vision 2030,” said Crown Prince Mohammed bin Salman, the PIF’s chairman and the country’s prime minister, in a statement released through state news agency SPA.

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Tags: Aramco, Asian Winter Games, Bonds, cash, Mohammed bin Salman, NEOM, PIF, Saudi Arabia, Vision 2030

German legislators have introduced draft legislation to reform the country’s pension system to shore up the system as the country’s population ages.

The draft bill, translated as the Pension Level Stabilization and General Capitalization Act, was published on March 5, with the goal of maintaining the state pension, a similar system to Social Security, which all German workers pay into and receive retirement benefits from.

The legislation aims to keep Germany’s statutory pension level, or Rentenniveau, at 48%, which is the pension benefit as a percentage of the average wage in Germany. However, if left unchanged, expected demographic changes would force the pension level to be decreased, resulting in current and future generations of retirees receiving less retirement income. The pension level has declined from around 53% in 2000, according to German labor union IG Metall.

Additionally, the draft bill proposes the creation of a foundation called “generational capital” that would invest in equities and make contributions to the country’s pension system starting in the mid 2030s to maintain the pension level at 48%. The fund would be initially financed by a 12-billion-euro loan from the German government, starting in the 2024 budget year. The fund would be expected to make a 3% return on this loan.

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“The aim of the law is to keep the statutory pension stable as a mainstay of old-age security in the long term through a permanent pension level of 48% and to be financed with generational capital in view of the development of expenditure and to ensure that the statutory pension insurance continues to remain reliable for younger generations,” states a translated description of the legislation.

By 2036, the generational capital fund would be expected to have more than 200 billion euros in managed assets, which would be sufficient for the fund to use its net income to stabilize the pension contribution rate, with the draft legislation planning for 10 billion euros of pension contributions to be made from the fund annually, starting in 2026.

The fund is expected to primarily invest in global equities, with the legislation calling for a “return-oriented and globally diversified investment strategy.” Assets in the fund would be managed by the foundation.

The proposed system is not without criticism.

“The financial markets are not a solid basis for statuary pensions,” IG Metall stated in a translated statement. “They sway too much. The pay-as-you-go system, on the other hand, has proven to be stable and extremely flexible for many decades.”

The legislation is planned to be passed before the summer, according to German Finance Minister Christian Lindner and Labor Minister Hubertus Heil, who presented the plan at a conference on Tuesday.