Saudia Arabia’s Sovereign Wealth Fund Bolsters Renewable Investments

As part of Saudi Arabia’s ongoing strategy to transform from the world’s second-largest oil producer—behind only the U.S. —into a dominant player in renewable energy, its $990 billion sovereign wealth fund has recently signed four joint venture deals involving solar, wind and green hydrogen projects.

The investments by Saudi Arabia’s Public Investment Fund aim to build production facilities and supply chains within the country’s renewable energy sector as part of its goal to generate up to 130 gigawatts of renewable energy by the end of the decade under its Vision 2030 economic plan.

One of the joint ventures is with Shanghai-based wind power technology company Envision Energy and Saudi manufacturing firm Vision Industries. The venture will involve manufacturing and assembling wind turbine components with an estimated annual generation capacity of 4 gigawatts.

Envision will own a 50% stake in the joint venture, with PIF subsidiary Renewable Energy Localization Co. owning 40% and Vision Industries holding the remaining 10%.

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Another joint venture is with panel maker Jinko Solar Co. Ltd., also based in Shanghai, and Vision Industries. The venture involves manufacturing photovoltaic cells and modules in Saudi Arabia to generate 10 gigawatts of solar power annually. Under the agreement, RELC and Jinko Solar will each hold a 40% stake in the joint venture, with Vision Industries owning the other 20%.

The third joint venture is with Lumetech SA PTE Ltd., a subsidiary of China’s TCL Zhonghuan Renewable Energy, and again with Vision Industries. The deal aims to produce solar photovoltaic ingots and wafers in Saudi Arable with annual production that is expected to generate 20 gigawatts of power. Under the agreement, RELC and Lumetech will each own a 40% stake in the joint venture, with Vision Industries holding 20%.

The PIF also signed a memorandum of understanding with French utilities company Engie SA to jointly develop green hydrogen projects in Saudi Arabia. Under the MoU, PIF and Engie announced they will evaluate the feasibility of co-development opportunities and form a strategy to approach the international market and secure offtake arrangements.

“Our partnership with PIF will contribute to laying robust foundations for the green hydrogen industry, enabling the Kingdom to be one of the top exporters of green hydrogen worldwide,” said Engie’s Frédéric Claux in a statement.

According to sovereign wealth fund data provider Global SWF, the PIF is mandated to develop 70% of Saudi Arabia’s renewable energy program and expects to invest more than $10 billion in green projects from 2022 to 2026. The kingdom also plans to increase solar and wind energy in its local grid to 50% by 2030, Global SWF reported. [Source]

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Tags: Energy Solutions Company, Engie, Envision Energy, NEOM Green Hydrogen Project, Nucera, PIF, Public Investment Fund, RELC, Renewable Energy, Renewable Energy Localization Company, Saudi Arabia, solar power, Sovereign Wealth Fund, Thyssenkrupp, Vision Industries, wind power

Private equity continues to generate the most growth for allocators, according to a study by the American Investment Council, a trade association for private assets, even though their performance in the last couple of years has lagged amid languishing dealmaking and higher interest rates.

The study shows not just that “private equity delivers the best returns, but that it brings diversification” as well, comments Drew Maloney, the AIC’s CEO and president, in an interview. Plus, “it gives us access to growth companies.”

For the 10-year period ending in 2023, pension funds found that PE delivered the best performance, an annual 15.2%. Second place was public stocks, at 10.2%, then real estate at 9.6% and fixed income at 2.1%. Total fund return from PE averaged 7.9%. “Even the bottom 25th percentile of private equity returns exceeds the media public equity return,” the report said.

The study reported that 88% of public funds had PE exposure, representing 14% of the portfolio in dollar terms. PE is the third biggest allocation among public funds. The largest allocation was to public equity at 42%, with 21% to fixed income.

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The favorable findings for PE are echoed elsewhere: A study by the Chartered Alternative Investment Analyst Association found that public pension funds’ PE investments, often to M&A and initial public offerings, outpaced other investment types for the long term on average and continued to do that in 2023. Ernst & Young projects that mergers and acquisitions deals will climb by 24% this year, and law firm White & Case expects much the same for IPOs, which it said advanced 24% in 2024’s first two months. Expected lower rates are a factor in the optimism.

Top 10 Public Pension Funds' Investments in Private Equity

In billions of dollars. As of June 30, 2023.

California Public Employees Retirement System

$60.15

California State Teachers Retirement System

$48.95

Washington State Investment Board

$44.90

New York State Common Retirement Fund

$36.98

Teacher Retirement System of Texas

$33.00

Oregon Public Employees Retirement System

$26.19

New York City Public Pension Funds

$24.44

Virginia Retirement System

$19.10

Florida Retirement System

$17.49

Massachusetts Pension Reserve Investment

$16.76

Source: American Investment Council

The California Public Employees’ Retirement System, for instance, is among the many fans of PE. The fund announced in March that it would boost its target allocation to private equity and other private assets to 40% from 33% and that PE is its top returning investment. CalPERS, as of January 31, held $68.7 billion in private equity assets, 14.2% of its portfolio. It is the largest PE investor among public funds, followed by the California State Teachers’ Retirement System and the Washington State Investment Board (see chart).

The best returning pension fund PE portfolio, over 10 years, was that of the Vermont Pension Investment Commission, at 20.5%, followed by the Illinois State Board of Investment and the New York City Board of Education Retirement System, both at 18.8% (the Illinois system is slightly ahead by 0.02 percentage points).

PE overall enjoys a good reputation in the investing world. As AIC’s Maloney points out, PE investments tend mostly to benefit smaller companies, which “boost the economy and need the capital.”