What’s behind the $8-billion hit to Saudi Arabia’s massive wealth fund

Saudi Arabia’s mammoth sovereign wealth fund saw a major decline in investments in its so-called “gigaprojects,” amounting to an $8 billion write-down at the end of 2024 — despite assets under management reaching nearly $1 trillion, according to its annual report.

Gigaproject investments declined by 12.4% to 211 billion Saudi riyal ($56.2 billion). Meanwhile, assets overseen by the PIF climbed 19% from the end of 2023 to around $913 billion, making it one of the largest and fastest-growing sovereign wealth funds on the planet. The gigaprojects, which include the futuristic $500 billion Neom development, constituted 6% of the PIF’s assets in 2024, down from 8% the year prior.

The writedown comes amid lower global oil prices and a growing fiscal deficit for the Saudi kingdom, whose economy depends heavily on oil despite efforts to diversify it and substantial non-oil revenue growth.

The PIF’s annualized returns since 2017 dropped to 7.2% from 8.7% the previous year. The fund — which has significant holdings in a range of blue-chip companies like Uber and Tesla, and owns major sports franchises like LIV Golf and British soccer club Newcastle United — was also seen broadening its funding base, raising nearly $10 billion in public debt and $7 billion privately.

International investments fell to 17% of the portfolio, down from 20% the year prior as the fund honed its focus on domestic investments.

Part of the reason behind the PIF’s significant jump in AUM is thanks to more of Saudi state oil giant Aramco being allocated to the fund. But analysts note that if crude prices continue to fall, as some industry forecasters expect will be the case, the percentage of revenue that the Saudi government and PIF will be able to derive from those oil investments is likely to decrease in tow.

Lower oil prices, and reduced Aramco dividends due to lower oil demand projections, are expected to limit PIF’s investment funds. In the meantime, it is expected to increase its investments in high-growth areas like artificial intelligence, analysts say.

The brainchild of Saudi Crown Prince Mohammed bin Salman, Neom is slated to contain a number of futuristic cities and developments that the kingdom expects will bring in millions of new residents and revolutionize living and technology in the country. However, budget overruns, operational complications and global oil market conditions have forced the kingdom to scale back or entirely shelve some of those projects, sources who have worked on Neom have told CNBC.

The cost of Neom as a whole has been estimated to cost anywhere between $500 billion and $1.5 trillion. After many years of seemingly unlimited spending, 2024 began to see an abrupt shift as the Saudi budget deficit grew and the price of a barrel of oil fell well below what the kingdom needs to balance its budget.