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Saudi Arabia Goes High-Tech in Approach to Investing

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Saudi Crown Prince Mohammed bin Salman visits Lockheed Martin in San Francisco in April.


Photo:

handout/Reuters

When Saudi Arabia’s Crown Prince

Mohammed bin Salman

toured the U.S. two years ago, he couldn’t even get an audience with

Tesla
Inc.

Chief Executive

Elon Musk

people familiar with the outreach said. Now, the royal is in talks to take the electric-car maker private.

The shift shows how quickly Crown Prince Mohammed and his sovereign-wealth fund have become a pivotal global investor. The Public Investment Fund’s moves have also brought an element of unpredictability to a $225 billion fund, mirroring the headlong leadership style of 32-year-old Prince Mohammed, who is trying to transform Saudi Arabia from a staid petrostate to a technology-focused economy.

But with its aggressive approach to investment, PIF is also leveraging up, sourcing direct deals and shifting into higher-risk tech startups. Some Saudis worry that it is jeopardizing the wealth of the Saudi Arabia’s next generation by combining politics and inexperience with impulsive bets on technologies of the future. The talks with electric-car maker Tesla have crystallized those concerns.

“There are several people in the government that would question that deal and whether it is the right call,” an adviser to the Saudi government said. “Saudi Arabia wants to go big on electric vehicles but wanting something and making it a reality is something else.”

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Splashing the Cash

Saudi Arabia's sovereign-wealth fund has quickly sourced billion-dollar deals.

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name

Location

year

VALUE

Softbank

$45 billion

Japan

2016

20

Blackstone

U.S.

’17

Russian DIF

10

Russia

’17

5.3

AccorInvest*

France

’18

Uber

3.5

U.S.

’16

2.0

Tesla†

U.S.

’18

Adeptio‡

1.2

UAE

’16

1.1

Posco

S. Korea

’15

Virgin

1.0

U.S.

’17

0.5

Noon

UAE

’16

Magic Leap

0.4

U.S.

’18

*Part of a Consortium of buyers. †Estimated 4.6% purchase in listed shares reported by Financial Times. ‡Estimated value based on company’s total sale value.

Source: Public Investment Fund press releases. Includes committed capital and announced stake purchases

Interviews with advisers and people close to the PIF said the fund sources its potential deals through political and business ties. The crown prince ultimately makes the call whether to go ahead with investments, and in many cases, has forged personal connections with the executives running the companies.

The Saudi royal toured the U.S. in 2016 in a push for tech deals that included an outreach to Tesla, which was rebuffed, people familiar with the matter said. Tesla didn’t have an immediate comment on the account.

In a blog post on Monday, Mr. Musk said Saudi Arabia had reached out to him two years ago and he started face-to-face talks early last year with the PIF on a major stake.

Since then, the fund built a 4.6% stake via listed shares in Tesla, one of the U.S. stock market’s most-shorted stocks. It is now in talks to buy a larger stake in the firm to help Mr. Musk engineer a private buyout. Mr. Musk stunned markets last week when he shared his thinking over Twitter about taking Tesla private. The announcement is now subject to regulatory scrutiny.

Participants watch a movie advertising Saudi Arabia's Red Sea project on the sidelines of the three-day Future Investment Initiatives conference in Riyadh last October.

Participants watch a movie advertising Saudi Arabia’s Red Sea project on the sidelines of the three-day Future Investment Initiatives conference in Riyadh last October.


Photo:

fayez nureldine/Agence France-Presse/Getty Images

Tesla’s directors on Tuesday formed a special committee to evaluate Mr. Musk’s suggestion of taking the company private.

The senior Saudi adviser and another person with knowledge of the matter said

SoftBank Group
Corp.

Chief Executive

Masayoshi Son

encouraged the Saudis to buy into Chinese electric-battery maker Contemporary Amperex Technology Co., but the crown prince preferred Tesla because it is American.

A spokesman for SoftBank declined to comment on Mr. Son’s advice for the crown prince. People close to SoftBank have ruled it out of any deal for Tesla, despite its major partnership with PIF.

Spokesmen for PIF declined to comment. The Saudi government and its royal court didn’t respond to phone and email requests for comments on this article.

Officials at the Saudi fund are seeking Tesla’s expertise to tie into broader plans to create new industries in solar-power generation, battery storage and electric-vehicle production, The Wall Street Journal has reported. The fund, which is talks with banks to raise billions of its own debt, hopes its investments in technology will act as a hedge against the decline of the energy sector.

The PIF isn’t alone in investing in technology. Singapore’s Temasek Holdings and GIC Private Ltd. and the China Investment Corp. also have become active in venture capital. Although unusual, other sovereigns such as Temasek also have taken on debt.

But the PIF is unique in the size and scope of the investments, said

Javier Capapé,

director of the Sovereign Wealth Lab at Madrid’s IE Business School.

“PIF investing in tech is part of the country’s wider strategy,” he said. “What’s not very clear to me is how investing in high-tech things will drive your economy or lead you into other sectors to compensate the oil.”

The PIF’s first major international technology investment, in Uber Technologies Inc., was hatched in 2016 after a barbecue in Riyadh attended by PIF Chief Executive

Yasir Rumayyan

and then-Uber policy head and former White House official,

David Plouffe,

people familiar with the deal said. Uber’s then-chief,

Travis Kalanick,

subsequently visited Saudi Arabia to meet Crown Prince Mohammed and the PIF bought $3.5 billion stake within weeks, people familiar with the deal said.

The PIF soon after made an even bigger wager than Uber. It committed $45 billion into Softbank’s $100 billion Vision Fund. That deal was famously agreed upon in a 45-minute conversation between Crown Prince Mohammed and Mr. Son, before the two sides then spent months agreeing on the details. .

A month later in Dubai, Mr. Rumayyan stepped in with another surprising investment.

Emirati billionaire businessman

Mohamed Alabbar

was set to announce a major new e-commerce startup to take on Amazon Inc. Minutes before Mr. Alabbar took the stage at the Dubai Opera House, the PIF signed an agreement to back the venture, known as Noon, with $500 million, people familiar with this deal said. Although PIF had been reluctant to invest in the startup, Crown Prince Mohammed encouraged the deal because it is also backed by officials in Abu Dhabi, the capital of the United Arab Emirates and Saudi Arabia’s closest ally, the people said.

In March, when Saudi Arabia also took a $400 million stake in augmented- reality startup Magic Leap Inc., people close to the deal were stunned at how quickly it came together—just six days. The speed caught the attention of Silicon Valley’s financiers and entrepreneurs.

“They did the Uber deal and increased their profile as a fund,” said an adviser familiar with Saudi government thinking. “When Yasir [Rumayyan] then went to California, everyone wanted to meet him.”

Write to Rory Jones at rory.jones@wsj.com, Summer Said at summer.said@wsj.com and Maureen Farrell at maureen.farrell@wsj.com

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