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The saudis are desperate to use their sovereign wealth fund to diversify (i.e. save) their economy. The country has a lot of problems but I'm legitimately exci

The saudis are desperate to use their sovereign wealth fund to diversify (i.e. save) their economy. The country has a lot of problems but I'm legitimately excited to see what they come up with. The first step to getting out of a hole is to recognize you're in one, and they have. With any luck, economics-driven policy will lead to social change as well.

tyingq 10y ago
They have $3.5B of it tied up with Uber at the moment. Not sure how prudent that was, and I don't mean the recent controversy. Just seems like a big bet on something that depends on future investments of the same magnitude to keep afloat until self-driving cars are really a thing. Edit: Disagree? Please reply. This isn't a general Uber bash. It's known that they run at a very large quarterly losses (-$800M reported for Q3/16). Making a huge investment does come with the downside that you're the go-to when funds are running low. You have to keep buying in, or hope someone else does. If the idea is to diversify away from risk, it seems an odd choice. I'm open to learning why it was a good idea.
- harryh 10y ago
  The idea is to diversify away from oil, not to diversify away from risk.
  - tyingq 10y ago
    Well, I assumed diversify away from "high risk", given that oil is pretty "high risk" over the long term for them.
    - elastic_church 10y ago
      Not as big of a deal as you imagine. Diversifying now is the optimal scenario. Booms busts they'll be ok
    - deleted 10y ago
      [deleted]
    - sf_rob 10y ago
      These are seemingly non-correlated assets. Saudi Arabia is (apparently) minimizing their diversifiable risk, not minimizing their investment in risky sectors altogether.
  - gchadwick 10y ago
    Another point is $3.5b sounds like a big number but likely a rather small portion of the Saudi's sovereign wealth fund. Putting a low % of your portfolio into risky, but potentially highly valueable asset is generally seen as a reasonable thing to do.
    - tyingq 10y ago
      I agree it's small in their terms, but as mentioned, the concern is that it's not small in terms of who Uber might go back to when they are running low. Sort of like a poker game where you have to keep buying in to keep the house afloat.
    - Retric 10y ago
      The problem is risk vs upside. If you make a 3.5 billion dollar bet for less than 100% and it became the largest company on eart that's not a huge ROI.
      - MegaButts 10y ago
        I'm not very optimistic about Uber, but where else can you potentially get a 10x return on a 10 digit investment?
        Retric 10y ago
        Lot's of smaller but good investments vs a lower quality bad investment. The best option for sovereign wealth funds is probably buying the widest possible swath of companies that reach some basic criteria. I suspect they do massive deals because internal politics means being in charge of such a deal let's you gain more power even if it costs the country on average because a huge win on a 3.5 billion investment means little at that scale.
        harryh 10y ago
        Splitting up money into a bunch of smaller investments significantly decreases your chance of an outsized return and increases your chance for achieving the mean return for that asset class.
harryh 10y ago
It's not clear to me how making investments in companies not based in Saudi Arabia help them diversify their economy. They need to be investing in building domestic companies not based on oil. This will require investments in infrastructure, education, health care, etc. And, as you said, social liberalization as well.
- hinkley 10y ago
  When all your assets are tied to your currency and your currency tanks life gets hard. Having foreign assets you can divest and spend is useful, and is one of the things (along with oil transactions) that props up the US dollar's value. Because everyone ends up buying T bills as a simple way to hold assets denominated in dollars. Japan in the 80's simply started buying up America (real estate, businesses) because of our recession, and a lot of people already worried about automobile manufacturing had a whole new set of worries. But then Japan had its own recession in the 90's and a lot of divestiture happened.
- deleted 10y ago
  [deleted]
- DashRattlesnake 10y ago
  > It's not clear to me how making investments in companies not based in Saudi Arabia help them diversify their economy. Maybe they're not trying to diversity the economy as much as the economic position of the royal family? Saudi Arabia isn't a democracy, and it still has an actual sovereign.
- vidarh 10y ago
  Norway's wealth fund invest primarily abroad as well for the simple reason that while it is important to diversify the local economy, pouring vast amounts of money into the local economy drives inflation. The Saudi's are already pouring money into the local economy as well. But there's only so fast their economy can make efficient use of that money without overheating. Investing abroad is a way of creating a lasting income stream without those problems.
  - 10y ago
stupidcar 10y ago
Wouldn't diversifying their economy would mean making major investments in local technology firms? This sounds less like trying to diversify their economy, and more about trying to secure a post-oil source of wealth for the ruling elite.
- oculusthrift 10y ago
  the ruling elite is their economy.
- Mikeb85 10y ago
  They don't care about the local economy though. Just wealth for the ruling class. They can buy slaves/workers when they need them, discard them when they don't, and soon enough they'll be able to just buy a robot army to keep it all together.
metaphorm 10y ago
> With any luck, economics-driven policy will lead to social change as well. don't count on it. the regime isn't interested in social change. they're interested in retaining wealth and power for another 100 years and trying to adapt for the fact that their oil wealth only has another 30(ish) years left. the priorities of the Saudi regime are very clear. they haven't been secretive. they promote Wahabism/Salafism and are waging a cold-war with Iran and every other Shia majority country in the world. They are religious fanatics driven by theological concerns.
- toyg 10y ago
  Nah, they are pragmatic rulers who use religion and war (and religious war) as an extension of politics. Their legitimacy is entirely based on being the custodians of Mecca, so they make sure Mecca remains at the forefront of people's minds. The Wahabi royals are not unlike certain politicians who brand themselves "defenders of traditional family values" and then whip up hysteria about "war on Christmas": they manufacture conflict to strengthen their own legitimacy. Without conflict they become irrelevant, so they'll make sure conflicts never end. It's such an old game, but it's incredible how well it still works all over the world.
  - jlewis7272 10y ago
    </sarcasm>
Mikeb85 10y ago
Yeah, diversify their economy and expand their power, both military and soft power (terrorism) in order to maintain their grip on the peninsula as well as on global Islam. > With any luck, economics-driven policy will lead to social change as well. Don't count on it. All they seem to ever come up with is more modern ways to implement backwards laws.

tyingq 10y ago

They have $3.5B of it tied up with Uber at the moment. Not sure how prudent that was, and I don't mean the recent controversy. Just seems like a big bet on something that depends on future investments of the same magnitude to keep afloat until self-driving cars are really a thing. Edit: Disagree? Please reply. This isn't a general Uber bash. It's known that they run at a very large quarterly losses (-$800M reported for Q3/16). Making a huge investment does come with the downside that you're the go-to when funds are running low. You have to keep buying in, or hope someone else does. If the idea is to diversify away from risk, it seems an odd choice. I'm open to learning why it was a good idea.

harryh 10y ago
The idea is to diversify away from oil, not to diversify away from risk.
- tyingq 10y ago
  Well, I assumed diversify away from "high risk", given that oil is pretty "high risk" over the long term for them.
  - elastic_church 10y ago
    Not as big of a deal as you imagine. Diversifying now is the optimal scenario. Booms busts they'll be ok
  - deleted 10y ago
    [deleted]
  - sf_rob 10y ago
    These are seemingly non-correlated assets. Saudi Arabia is (apparently) minimizing their diversifiable risk, not minimizing their investment in risky sectors altogether.
- gchadwick 10y ago
  Another point is $3.5b sounds like a big number but likely a rather small portion of the Saudi's sovereign wealth fund. Putting a low % of your portfolio into risky, but potentially highly valueable asset is generally seen as a reasonable thing to do.
  - tyingq 10y ago
    I agree it's small in their terms, but as mentioned, the concern is that it's not small in terms of who Uber might go back to when they are running low. Sort of like a poker game where you have to keep buying in to keep the house afloat.
  - Retric 10y ago
    The problem is risk vs upside. If you make a 3.5 billion dollar bet for less than 100% and it became the largest company on eart that's not a huge ROI.
    - MegaButts 10y ago
      I'm not very optimistic about Uber, but where else can you potentially get a 10x return on a 10 digit investment?
      - Retric 10y ago
        Lot's of smaller but good investments vs a lower quality bad investment. The best option for sovereign wealth funds is probably buying the widest possible swath of companies that reach some basic criteria. I suspect they do massive deals because internal politics means being in charge of such a deal let's you gain more power even if it costs the country on average because a huge win on a 3.5 billion investment means little at that scale.
        harryh 10y ago
        Splitting up money into a bunch of smaller investments significantly decreases your chance of an outsized return and increases your chance for achieving the mean return for that asset class.

harryh 10y ago

It's not clear to me how making investments in companies not based in Saudi Arabia help them diversify their economy. They need to be investing in building domestic companies not based on oil. This will require investments in infrastructure, education, health care, etc. And, as you said, social liberalization as well.

hinkley 10y ago
When all your assets are tied to your currency and your currency tanks life gets hard. Having foreign assets you can divest and spend is useful, and is one of the things (along with oil transactions) that props up the US dollar's value. Because everyone ends up buying T bills as a simple way to hold assets denominated in dollars. Japan in the 80's simply started buying up America (real estate, businesses) because of our recession, and a lot of people already worried about automobile manufacturing had a whole new set of worries. But then Japan had its own recession in the 90's and a lot of divestiture happened.
deleted 10y ago
[deleted]
DashRattlesnake 10y ago
> It's not clear to me how making investments in companies not based in Saudi Arabia help them diversify their economy. Maybe they're not trying to diversity the economy as much as the economic position of the royal family? Saudi Arabia isn't a democracy, and it still has an actual sovereign.
vidarh 10y ago
Norway's wealth fund invest primarily abroad as well for the simple reason that while it is important to diversify the local economy, pouring vast amounts of money into the local economy drives inflation. The Saudi's are already pouring money into the local economy as well. But there's only so fast their economy can make efficient use of that money without overheating. Investing abroad is a way of creating a lasting income stream without those problems.
- 10y ago

stupidcar 10y ago

Wouldn't diversifying their economy would mean making major investments in local technology firms? This sounds less like trying to diversify their economy, and more about trying to secure a post-oil source of wealth for the ruling elite.

oculusthrift 10y ago
the ruling elite is their economy.
Mikeb85 10y ago
They don't care about the local economy though. Just wealth for the ruling class. They can buy slaves/workers when they need them, discard them when they don't, and soon enough they'll be able to just buy a robot army to keep it all together.

metaphorm 10y ago

> With any luck, economics-driven policy will lead to social change as well. don't count on it. the regime isn't interested in social change. they're interested in retaining wealth and power for another 100 years and trying to adapt for the fact that their oil wealth only has another 30(ish) years left. the priorities of the Saudi regime are very clear. they haven't been secretive. they promote Wahabism/Salafism and are waging a cold-war with Iran and every other Shia majority country in the world. They are religious fanatics driven by theological concerns.

toyg 10y ago
Nah, they are pragmatic rulers who use religion and war (and religious war) as an extension of politics. Their legitimacy is entirely based on being the custodians of Mecca, so they make sure Mecca remains at the forefront of people's minds. The Wahabi royals are not unlike certain politicians who brand themselves "defenders of traditional family values" and then whip up hysteria about "war on Christmas": they manufacture conflict to strengthen their own legitimacy. Without conflict they become irrelevant, so they'll make sure conflicts never end. It's such an old game, but it's incredible how well it still works all over the world.
- jlewis7272 10y ago
  </sarcasm>

Mikeb85 10y ago

Yeah, diversify their economy and expand their power, both military and soft power (terrorism) in order to maintain their grip on the peninsula as well as on global Islam. > With any luck, economics-driven policy will lead to social change as well. Don't count on it. All they seem to ever come up with is more modern ways to implement backwards laws.