Media reports suggest financial pressures at PIF and a need to reassess their investments in the not too distant future. What does that mean for us? TF delves deeper to try and understand their intentions.
***
Bloody typical. You wait months for an obscure but potentially significant story involving the owners’ finances and two come along at once. Because while Saint Staveley of Lightwater was struggling to get her financial house in order in the High Court, it seems her Saudi paymasters might have money worries of their own.
The Wall Street Journal – you’re all avid readers, I know – report that a combination of lavish spending and plunging oil prices has drastically eroded PIF’s cash reserves. In fact they’ve fallen 75% in the space of a year and stand at their lowest ever levels.
That’s right, everyone’s favourite desert despot, Mohamed Bin Salman, now has only $15 billion in crisp unused tenners stuffed under his mattress, which doesn’t go very far when your everyday spending has to cover essentials like $500 billion, 70-mile long skyscrapers built on (literal) sand. I mean, we’ve all been there.
As a result, he’s had to sell off some of the family silver in the form of shares in the state oil concern, Aramco: $163 billion, as it happens. Saudi will also need to borrow money to continue their investments, very much not what sovereign investment funds normally do. While solving the immediate problem, both steps come with long-term costs: reducing vital income from dividends, increasing borrowing costs, and endangering the pegging of their currency to the dollar.
And, of course, that’s where our club comes into it, because experts suggest that, at some point soon, PIF is going to have reassess its spending and scale back some its projects. Recent spending had been fuelled by sky-high oil prices, but those have now fallen by 20%. As Karen Young, senior fellow at the Middle East Institute puts it: “There will be a reckoning”.
With progress stalling on the field, PSR restricting their impact, and uncertainty (real or otherwise) about the futures of Staveley, Howe, and Ashworth, this summer feels like a crucial crossroads for PIF and our club.
***
The main problem for us is that no-one can be certain about PIF’s current intentions or indeed why they bought us in the first place, no matter how confidently the media (fan-based or mainstream) like to assert otherwise. That, in turn, makes it very difficult to predict how they will act in the summer. If we wade through what’s in the public domain about PIF and its history, four different purposes for the fund emerge, each with different implications for us. Let’s consider each in turn.
1. Long-term economic return
Despite what their public image might suggest, PIF is not the largest sovereign wealth fund in the world. Founded in 1971 and with $718 billion in assets as of September 2023, PIF stands only fifth. The largest? Norway, as it happens, with assets of $1.4 trillion, and it’s Norway that acts as the model for a traditional sovereign wealth fund created by a country rich in oil and gas reserves.
This, as Staveley herself put it, is the fund as a “pension pot” for a whole country, making a wide range of investments with the aim of securing long-term growth in value. Risk has to be managed and balanced carefully across the portfolio to ensure a good return.
For states rich in hydrocarbons, those investments take on an additional purpose. They diversify the country’s wealth out of fossil fuels which, let’s face it, are not a sustainable long-term proposition. Much like any Sunderland manager.
This is the sensible, orthodox approach to sovereign wealth and depends on investment expertise, transparency, and a whole series of checks and balances to ensure the right kind of investments are being made. As we’ll see, this is one of the points of tension in PIF, but in theory it should lead to further sensible investment Newcastle as a sustainable long-term business. Like Ashley but with common sense and actual money. So not like Ashley at all, then.
2. Social liberalisation
As we know, that diversification out of oil is part of Bin Salman’s Vision 2030. The other main element, at least in the public relations version, has been to effect (relative) social liberalisation. As has been widely reported, Saudi has a young population and one that has long been constrained by a socially conservative regime.
Now, let’s not get carried away here. Saudi is not a good place to be female, let alone LGBT+. In fact, my standard English understatement is out of place in this context. It’s despicable, deplorable, and inhumane. We should be ashamed to be associated with the place.
But this “liberalisation” – much more economic than social – is nonetheless a driver in some of the investments PIF makes, above all in sport, technology, and entertainment. For example, $38 billion has recently been committed to creating an eSports and gaming sector in the country.
With our black and white blinkers back on, investment in a high-profile western sports team is part of that agenda to develop the interests of the young population and has to be interpreted as such. This begins to apply different rules and loosen the need for sustained economic return.
3. Soft power
Eight hundred words in and the first mention of sportswashing. Remember when it wasn’t possible to breathe without hearing the word? Seems we and the media get bored of such things. Which is just about the best proof of the efficacy of sportswashing you’ll get.
In truth, it was never anything but a lazy shorthand. The use of sport as a political tool by authoritarian (and, for that matter, non-authoritarian) regimes has a long history and it’s always been about more than “washing” away the stains of persecution and human rights abuses. It’s about soft power, about political and cultural influence both internally and externally.
Political repression internally isn’t just about coercive force, and diplomatic power externally isn’t just about military threat. High profile sporting success has long proven to be a useful method of mobilising your population behind a shared national vision and securing influence internationally.
Now in that context, Miggy’s right foot and BDB’s lack of pace on the turn might seem trivial. I don’t imagine Bin Salman stays awake at night worrying about them. But paradoxically, it also makes them all the more important. The stakes are raised, and that can lead to more extreme and unpredictable decision-making.
4. Personal vanity
And here’s where it gets really interesting. Now obviously PIF is definitely a separate entity to the Saudi regime. Absolutely. Incontrovertibly. Someone made Dickie Masters a pinkie promise about separation at exactly the same time he was being furiously lobbied by the government and immediately after the Saudis stopped pirating Premier League content. So separation is clearly all entirely above board and objectively true.
However, despite the completely, definitely factual nature of separation, it turns out that Bin Salman gets heavily involved in PIF investment decisions. Well, he is its Chair, which was probably a bit of a clue. As a result, a host of recent investments follow his personal whims, rather than sound economic credentials, and many have been unsuccessful and directly against the recommendations of the kingdom’s professional financiers.
This matters because it takes us furthest from the “pension pot” model of a sovereign wealth fund and the security provided by sensible long-term economic return. Indeed, it’s caused tensions inside the regime and attracted censure from the IMF.
Exhibit A: $2 billion invested in a high-risk unproven venture launched by Donald Trump’s son-in-law, Jared Kushner. Exhibits B to D: investments of nearly $50 billion in tech companies that have, to varying degrees, gone tits up, including our venerable sleeve sponsor Noon.com. In fact the Wall Street Journal lists our acquisition as one of those driven personally by Bin Salman.
The truth is, it doesn’t matter what Staveley and Ghodousi say about the long-term nature of PIF’s investment in our club, nor what they think about Howe’s future. For all the good work they’ve done, they’re ultimately little more than a convenient front for PIF, willing PR stooges. If in doubt, follow the money.
Despite reassurances given to the IMF and international investors about the fund’s governance, Bin Salman remains, in the words of the Wall Street Journal, a “wild card” prone to support “pet projects”, but it’s also those vanity projects that are most vulnerable in the forthcoming financial “reckoning”.
***
Because of the inherently political nature of PIF’s investment in our club, its overtime soft power aims, and its connection to the personal interests of senior regime figures, that investment is always going to be precarious. Despite the sensationalist headlines, PIF are still not exactly short of cash. But there are increasingly constraints on their spending, and something’s going to have to give eventually.
If PIF were a conventional sovereign wealth fund, the guaranteed steady returns from the club would be more than sufficient. But when it invests in the personal whims of an autocratic leader and his grandiose dick-waving “giga-projects”, things become less predictable.
What value is a mid-table football club in a deprived provincial city still picking former Championship players to Bin Salman when he could have bought a prestige super club with the loose change in his back pocket? Look at the wads spent on LIV golf and other sports events with no discernible return.
Is it time to cash in and find a new more marketable project? It’s not impossible. With the last vestiges of Ashley neglect expunged and the foundations of our club re-established, that might just be the best outcome for all concerned. I’m on board, for one.
Then again, who knows. Maybe they’ll decide to go to the other extreme, ignore PSR altogether and spaff a billion quid on players over the summer. Now, just think how many reserve full backs could we buy with that.
Matthew Philpotts
Don’t forget that the PIF spent over £1bn paying off BeinQ piracy charges so they were able to buy NUFC. Not exactly small change even for them.
PIF has $15bn cash but assets of $900bn.
I don’t think they are in need of a payday loan anytime soon
Also the the Aramco deal is a transfer of 8% from the government to PIF https://www.bloomberg.com/news/articles/2024-03-07/saudi-arabia-transfers-164-billion-aramco-stake-to-wealth-fund
I totally agree with Stephen and Wallace a well researched and informative article. Thanks Matthew.
Yep, Arab News today announces PIF valued at its highest ever at £725 billion confirmed. 14.03.24. Check it out yourselves.
Just been announced this morning 14.03.34 that the PIF has grown in value by roughly 30% to over £720 billion. Talk of any panic or concern does appear to be wildly wide of the mark.
Yes, absolutely. The fund is definitely growing in value. I think the concern was not about that but about cash reserves to fund further investment (the stated target is a total $2000 billion value for the fund!).
Also if the value grows by $200 billion but you invested $300 billion in assets to get there, that’s not actually growth. There’s no doubt they’re still investing massively. The WSJ talks about a reckoning in the next few years if oil prices remain low. But definitely no immediate concern.
You could always just go and support Sunderland, they are a bunch of miserable gits so you would fit right in.
I don’t know you Dave and I don’t know Matthew but I know who’s informative, interesting and thought provoking words I’d rather read.
Thank you for the enlightening article Matthew, stuff I wouldn’t have known otherwise, as ever time will tell eh.
Thanks, Stephen. Really appreciate that!
Have you seen the above. PIF fund valued ss of today 14.03.24 the highest it has ever been. £725 billion. Arab News.
Yes! This is the point. They’ve been spending lavishly while oil prices were high. Anything they buy or invest in adds to the value of the fund, so it’s bound to be the highest it’s ever been. That’s their strategy. To buy assets and increase the overall value of the fund. But they need oil prices to stay high to sustain that spending. Otherwise they’ll need to reassess and oil prices are now relatively low – $80 per barrel rather than $100+ which they were.
Let’s hope it goes tits up FTM
Wasn’t aware of any of this. Once again TF scoops the mainstream media (it’s difficult to get the Wall Street Journal in Deckham) – well done Matthew!