Wealth

A Difficult Year for Investors: Reviewing the Performance and Strategic Shifts of Major Sovereign Funds and PE Giants

Recently, the Saudi Public Investment Fund (hereinafter referred to as PIF), one of the world’s largest sovereign funds, released its 2022 annual report, showing that in 2022, the Saudi Public Investment Fund will achieve a revenue of US$25.4 billion, with a shareholder return rate of 8%, but a comprehensive loss of US$15.6 billion. (equivalent to RMB 112.2 billion).

The huge loss was mainly due to the failure of the investment in the SoftBank Vision Fund and the plunge in US technology stocks.

The most powerful LP in the Middle East, which had been frantically “sweeping goods” around the world, increased its investment in domestic stock assets last year. In 2022, PIF will significantly increase the proportion of its assets used in Saudi stocks from 24% to 32%, and will also reduce the share of international strategic assets from 20% to 10%.

Founded in 1971, PIF is the most important sovereign wealth fund in Saudi Arabia and one of the largest sovereign wealth investment funds in the world. It has more than US$600 billion in assets and is the “gold master” behind many top venture capital institutions. Institutions funded by PIF include: Blackstone, KKR, Apollo, Broad Maple, TPG, General Atlantic, CVC, Andreessen Horowitz, as well as domestic institutions Junlian, Honghui, etc.

01

Softbank’s vision of the largest LP, a loss

The “culprit” that caused the worst LP in the Middle East to suffer is Sun Zhengyi’s Softbank Vision Fund.

In September 2016, Masayoshi Son let PIF throw $45 billion in a 45-minute speech at the pace of “raising $1 billion in one minute on average”, and PIF became the largest LP of SoftBank Vision Fund in one fell swoop. In his speech, Sun Zhengyi not only listed how SoftBank will help Saudi Arabia transform its economic model, but also moved out its investment records to prove its own strength.

But the fact is that the Vision Fund lost $32 billion last year alone.

Heavy betting on U.S. technology stocks has also caused PIF a lot of losses. According to documents submitted to regulators at the end of the first quarter of 2023, PIF manages a US$35.6 billion US stock portfolio, including electric vehicle upstart Lucid and online car-hailing giant Uber.

PIF invested in Tesla rival Lucid in 2018. Lucid is the new energy vehicle company run by Peter Rawlinson, the father of Model S and former Tesla engineer. By the end of 2021, this investment has allowed PIF to earn more than 338 billion yuan. But in 2022, the situation took a turn for the worse, and Lucid’s stock price fell all the way, and the stock price fell by more than 85% in 2022. Since 2023, the performance of the stock has not improved, with an increase of less than 5% during the year.

At present, PIF’s stake in Lucid is valued at US$8.9 billion, accounting for about 25% of PIF’s US stock portfolio.

Also, ride-hailing giant Uber. In 2016, PIF injected $3.5 billion into Uber, the largest single investment by a private company in the world at that time. However, during the epidemic, Uber’s stock price fluctuated sharply, and the value of its investment has shrunk severely. At present, PIF’s stake in Uber is valued at approximately US$2.3 billion, accounting for approximately 8.4% of the investment portfolio.

The financial environment continues to fluctuate, making the performance of global venture capital unsatisfactory. Taking the United States as an example, according to the latest data from PitchBook, in the second quarter of 2023, the number of investment and financing events in the United States was 3,011, a decrease of about one-third in the same period last year; the financing amount was about 39.8 billion US dollars, a sharp decrease of nearly 50% year-on-year.

Huge losses also forced PIF to borrow externally. By the end of 2022, the PIF has borrowed up to $85 billion. Earlier this year, PIF raised another US$5.5 billion through the issuance of green bonds. The Saudi government also reached out, transferring a 4% stake in energy giant Saudi Aramco to PIF, worth nearly $80 billion.

02

Catering to national transformation, 20% invested in China

As a sovereign fund, PIF’s first goal is not to make money, but to get rid of oil dependence and achieve economic diversification.

Saudi Arabia once proposed the “Vision 2030” plan, which defined three major goals: to become the heart of the Islamic world, the hub of Asia, Africa and Europe, and a global investment power.

The “Vision 2030” pointed out that by 2030, the proportion of non-oil energy exports in Saudi Arabia’s GDP will increase from 16% to 50%, and strive to increase non-oil revenue by 6 times; the contribution of the private sector to the total economic output will be reduced from 3.8%. increased to 5.7%.

For this reason, PIF has injected large sums of money into non-oil industries such as technology, entertainment, electric vehicles, and sports, secretly leveraging the global capital structure. Statistics show that 80% of its funds are invested in the country and 20% in foreign countries. The goal for 2030 is to account for 50% each.

Among them, a lot of funds flowed to China. At present, PIF’s investment in China will account for 20% of overseas investment, with an investment amount of about 12.2 billion US dollars. The investment fields are diversified. In addition to the past investment in the Internet, online education and application software, cross-border e-commerce, artificial intelligence, clean energy, etc. also received attention.

According to SWFI data from the Sovereign Wealth Fund Research Institute, PIF has completed a total of 13 equity investments between 2017 and 2021. Among them, 4 deals were invested in the Internet, including Xiaohongshu, Koubei, etc., with an amount of US$3.93 billion; 4 deals were invested in online education, including Zuoyebang and Zhangmen One-to-One, etc., with an amount of US$3.25 billion; 2 deals were invested in software services , including Keep and Huachebang, with an amount of US$2.26 billion; one investment in online retail, which is US$1.5 billion for Guazi used cars; one investment in healthcare, which is US$1.15 billion for Ping An Good Doctor; one investment in commercial real estate, which is US$1.5 billion WeWork’s $500 million.

In 2023, this Saudi consortium will focus on the Chinese e-sports industry again. In February, Savvy Games Group, a subsidiary of PIF, invested RMB 1.8 billion (approximately US$ 265 million) in VSPO, a Chinese e-sports company Hero Sports, becoming the single largest shareholder of VSPO and setting a single investment record in the history of the e-sports industry.

Since the beginning of this year, the two-way investment between the Middle East and China has continued to heat up. LPs in the Middle East hold more than US$3.64 trillion in funds, accounting for one-third of the total global sovereign wealth funds, and they are the absolute funders in the world.

In 2022, LPs in the Middle East will continue to be active, and the investment expenditure of sovereign funds in the Middle East will be close to 89 billion US dollars, twice that of 2021.

This has also attracted many Chinese enterprises and investment institutions to raise funds. New energy car companies have especially become popular. Previously, the Kingdom of Saudi Arabia threw a $5.6 billion (approximately RMB 40.5 billion) “cooperation spree” to Gaohe, and then the Abu Dhabi sovereign fund of the United Arab Emirates sent $1.1 billion into NIO’s account. The large-scale cooperation projects signed by the state and companies such as Qiantu Motors, Tianji Motors, and Geely New Energy focus on a “rich and tyrannical”.

The bigwigs in the Middle East “have a lot of money but they are not stupid.” The reason why they invest heavily in Chinese new energy car companies is to cater to the country’s transformation strategy. Middle Eastern countries are highly dependent on the oil economy. With the transformation of energy structure, carbon emissions, pressure on environmental governance, and cyclical fluctuations in oil and gas prices are forcing them to undergo economic transformation.

In contrast, most of the Chinese VC/PE institutions that went to raise funds were disappointed, and very few raised money.

03

Collective loss of money in 2022

PIF was not the only large sovereign wealth fund to lose money last year.

Temasek, Singapore’s sovereign fund, announced its annual report for the 2023 fiscal year. This state-owned institution established for nearly 50 years rarely suffered a net loss of 7.3 billion Singapore dollars (about 39 billion yuan). As of March 31, 2023, The net value of Temasek’s investment portfolio fell to S$382 billion (about 2 trillion yuan), and the return on shareholders was -5.07%, the worst annual performance since 2016.

If PIF lost its investment in US stocks and SoftBank Vision Fund, then Temasek lost money because of its aggressive investment style in the encryption market. According to public information, Temasek has established and invested in at least 10 companies related to blockchain technology through venture entrepreneurship in the past few years.

The most heated discussion is the collapse of the FTX transaction that has caused a lot of noise in the cryptocurrency market. In the second half of 2022, FTX, the world’s third largest cryptocurrency exchange, announced that it had filed for bankruptcy in the United States, and even the 372 million SGD (approximately RMB 2 billion) invested by Temasek was in vain.

This incident even triggered questions from members of the Singapore Parliament to Temasek, and Temasek had to internally review and respond publicly. Temasek Chairman Lim Boon Keng issued a statement on the company’s website, saying: The investment team bears the ultimate responsibility for the investment decisions they make and has decided to collectively cut their salaries.

In addition to sovereign wealth funds, many top venture capital institutions in the world are having a hard time.

Blackstone, the global PE leader, is in a state of desperation. In the past year, both the revenue and stock price of this PE giant have fallen by more than 70%. First, Blackstone urgently restricted the redemption of funds from its Real Estate Investment Trust (BREIT), which caused dissatisfaction among a large number of investors. After that, Blackstone defaulted on another 530 million euro bond, which detonated the market. Also, in order to speed up the exit, Blackstone sold the office park at a loss of 10%.

Hedge fund giant Tiger Global Fund also lost money. In 2022, it will write down the investment value of all its venture capital funds in unlisted companies by about 33%, resulting in a reduction in the value of its startup company portfolio by US$23 billion (about 150 billion yuan).

Even the “stock god” Buffett did not escape. Its Berkshire Hathaway company will have a net loss of US$22.819 billion in 2022. This report card also allows Buffett to take a conservative attitude from 2023, continue to reduce his holdings of stocks, and hold a large amount of cash and US treasury bonds.

However, Buffett has achieved a turnaround this year. On August 7, the second quarterly report of Buffett’s Berkshire Hathaway showed that the company’s net profit in the second quarter reached 35.9 billion US dollars. Through the first six months of this year, the company sold more than $18 billion in net stock. The amount of cash and short-term U.S. Treasury bills (cash reserves) held by companies surged to $147.4 billion at the end of the second quarter, almost reaching a record high, with more than $120 billion invested in short-term U.S. debt.

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