Market Update: Private sector is crucial enabler for PIF, official says – Full Analysis

RIYADH: Saudi Arabia’s Public Investment Fund is increasingly relying on the private sector to drive value across its portfolio, a senior executive said, as the sovereign fund expands operational partnerships.

The fourth edition of PIF’s Private Sector Forum concluded on Feb. 10, bringing together executives from the local and global private sector across strategic industries, alongside 121 companies from the fund’s portfolio.

PIF’s Head of MENA Direct Investments Raid Ismail spoke to Arab News about the Operational Value Creation Group, digitization in the private sector, and the government’s role in partnering with businesses.

He said: “If you look at PIF from one side, it’s a private equity firm. If you look at it from another side, it’s a national economic development arm. You look at it from another side, it’s an asset manager, but in our essence, we are a sovereign wealth fund.”

He explained that achieving returns requires going deep into portfolio companies and enhancing operations beyond initial business plans. “The only way you can really get the returns you want is by going deep into the company and exceeding the business plan that they had by operational enhancement. So that’s the premise of it.”

According to Ismail, modern private equity firms must embed operational expertise. “Today, any private equity firm that does not have operating partners, like an operation value creation group, within it will not be able to raise funds. Versus 20 years ago, if I was a finance guy who wanted to raise money for private equity, I would have been able to do that without having the operational background.”

A core component of this approach is procurement and direct spending. By pooling demand across portfolio companies and negotiating collectively with suppliers, PIF achieves cost efficiencies.

“We’ve seen that there is anywhere between 10 to 30 percent enhancements in costs from negotiation and from specification enhancement. So that’s the functionality of procurement. Digital and AI is a theme that we can apply by doing diagnostics into these kinds of things,” he said.

The fund focuses on three key cross-portfolio functions: procurement and direct spend, digital enablement, and human capital development.

PIF’s value creation strategy centers on targeted deployment across 13 critical sectors aligned with Vision 2030. Once gaps are identified, investments are made either through existing portfolio companies, partnerships with private firms, or the creation of new entities.

Governance structures — including boards and committees — ensure strategic execution. After governance is established, an enablement plan is rolled out, where the OVCG plays a central role.

He said: “Operational enablement, in summary, (is) how do we help our companies to enhance revenues, profitable revenues, faster, quicker, more profitable. How we optimize costs, how we ensure digital as part of our DNA, and how we use (digitization) more effectively and efficiently. How we ensure human capital is enabled through the right targets and the right reward systems are the key drivers for what we look into from an operational perspective.”

“There is a way that, company by company, where we sit down, understand what is your ERP, or what are the digitization tools you have, and then share ideas. Also, there is a thematic way of how we use it, in the form of a data and AI maturity test, where we roll it out into the portfolio companies,” he said. “There has to be a return on investments in AI and digitization if they solve for three things: increasing or accelerating revenues, optimizing cost, or mitigating risk.”

He described the private sector as a critical enabler for PIF, making the forum a key meeting point between public and private actors. He cited Acwa as a leading example.

“We had, as a Kingdom, a green initiative, a renewable initiative, for power, and we found that Acwa was the best partner in that. By then we increased our ownership in Acwa and enabled Acwa to be that national champion. And today it is a global champion… (it’s) one company that I’m extremely proud of, and it enabled us to reach our aspiration.”

Local content remains a cornerstone of PIF’s supplier strategy. Portfolio companies are required to adopt policies favoring domestic suppliers and talent.

“We ensure that all our portfolio companies have a local content policy which favors local companies with local talent in it to drive that. And you can get marked more if you have a stronger local content. So, that’s another way we leverage the private sector,” he added.