BY GEORGE HAY

Mohammed bin Salman is Saudi Arabia’s fund manager-in-chief. The 32-year-old crown prince has direct control of the $250 billion Public Investment Fund, making him central to the deployment of the desert kingdom’s capital. Right now he is straying from his mandate.

On the face of it, a newly disclosed $2 billion investment in Tesla fits with the PIF’s diversification drive. By 2020, the fund wants to deploy a quarter of what it hopes will be $400 billion of assets outside Saudi Arabia. This should include strategic forays into the industries of the future. The PIF has also flagged its intention to top up its firepower with bank loans.

Using borrowed money to buy shares in Elon Musk’s carmaker at a multiple of 40 times forecast earnings for 2020 carries risks, but the royal known as “MbS” can argue it’s not a case of style drift.

Using financial holdings to punish Canada is harder to explain. The Saudi central bank and state pension funds this week instructed asset managers to dump Canadian stocks, bonds and cash, the Financial Times reported, after Ottawa criticised Riyadh’s human rights record. The move risks undermining Saudi’s ability to attract foreign capital at a time when international investors are already hanging back.

In 2016 and 2017, $8.9 billion of foreign direct investment flowed into Saudi, while $14.6 billion went the other way, according to Saudi Arabian Monetary Authority data. The picture looks a bit better when it comes to foreign purchases of equity and debt: combined net inflows were $22 billion in 2016 and 2017. However, that’s largely because Saudi borrowed to finance its deficit. Overall inflows remain small.

MbS may feel he doesn’t have to worry as much about attracting capital. Saudi’s budget deficit shrank in the second quarter, helped by an 82 percent year-on-year jump in oil revenue. Meanwhile, adding Saudi stocks to global indices compiled by the likes of MSCI should attract over $60 billion of inflows from foreign funds.

But if the PIF is going to diversify away from Saudi Arabia, it simultaneously needs to do more to entice investment from overseas. The Canadian quarrel suggests MbS’s asset management skills are veering off-piste.

First published Aug. 10, 2018

(Image: Bandar Algaloud/Courtesy of Saudi Royal Court/Handout via REUTERS)