RIYADH: Saudi Arabia’s Capital Market Authority has unveiled its ambitious 2024-2026 strategic plan, which aims to further develop the Kingdom’s financial market and enhance its global competitiveness.

With more than 40 initiatives, the plan is set to transform the capital market into a key pillar of the national economy, in line with Vision 2030.

In an interview with Arab News, Constantin Cotzias, European director at Bloomberg LP, said that the plan’s alignment with Vision 2030 is crucial to drive Saudi Arabia’s economic diversification through robust financial integration and growth. 

“The strategy emphasizes capital market development as a key enabler of economic growth by expanding financing options, promoting investment opportunities, and attracting international capital,” said Cotzias. 

He added that the sukuk and debt markets will play a key role in financing large-scale infrastructure and sustainable investments, driving the Kingdom’s non-oil economy.

Strategic pillars

The CMA’s strategy is built around three main pillars: market growth, ecosystem enablement, and investor protection.

The first pillar focuses on enhancing the capital market’s position in financing and investment. This includes expanding the stock market’s role in capital raising, developing sukuk and debt instruments, and enabling the asset management industry to attract more international investment. 

Martin Rauchenwald, managing partner at Arthur D. Little, told Arab News that deepening the market and increasing foreign investor participation is essential for creating a more liquid and resilient market that can withstand global economic volatility. 

“Competitive valuations and robust market liquidity are essential for attracting investors, making Saudi debt instruments more appealing than global alternatives,” Rauchenwald added. 

The strategy emphasizes capital market development as a key enabler of economic growth by expanding financing options, promoting investment opportunities, and attracting international capital.

Constantin Cotzias, European director at Bloomberg LP

A key component of this pillar is the CMA’s focus on increasing the size of the debt instruments market to 24.1 percent of gross domestic product by 2025. Cotzias explained that achieving this target will require regulatory reforms that enhance market accessibility for global investors and improve liquidity. 

Furthermore, simplifying the regulatory framework for issuing and listing debt instruments will significantly speed up capital market activities. 

Rauchenwald compared this to international benchmarks, noting that markets like the US and EU have streamlined their processes to allow for higher volumes of bond activity, which is a goal Saudi Arabia is striving for.

The second pillar emphasizes enabling the capital market ecosystem, particularly through support for financial market institutions and fintech innovation. 

The CMA aims to double the number of fintech companies licensed by 2026, with a focus on open finance applications and regulatory support for startups. 

Mohammad Nikkar, principal at Arthur D. Little Middle East, highlighted the importance of the CMA’s Fintech Lab initiative, which provides a controlled environment for fintech companies to experiment and grow. 

“The CMA’s sandbox approach balances regulatory oversight with the flexibility needed to foster fintech startups and innovation,” Nikkar told Arab News. 

Competitive valuations and robust market liquidity are essential for attracting investors, making Saudi debt instruments more appealing than global alternatives.

Martin Rauchenwald, managing partner at Arthur D. Little

The growth of fintech is expected to enhance competition and operational efficiency in the financial market. By promoting innovation and integrating advanced technologies, the CMA aims to streamline financial operations and improve access to services for both institutional and retail investors.

The third pillar focuses on protecting investors’ rights by improving transparency and supervisory mechanisms. 

Cotzias pointed out that enhancing compensation mechanisms and dispute resolution processes are vital for building investor confidence, particularly among retail investors. 

Drawing comparisons with the UK’s Financial Services Compensation Scheme, Cotzias noted that these measures reassure both local and international investors, ensuring that the market operates under a robust regulatory system.

Key initiatives

Among the 40 initiatives under the CMA’s strategy, the introduction of Special Purpose Acquisition Companies in the parallel market and the issuance of Saudi Depositary Receipts stand out. 

These steps are expected to diversify investment opportunities and attract both domestic and international investors. Rauchenwald emphasized the importance of SDRs in boosting cross-border investment, adding that this move is aligned with the CMA’s goal of integrating Saudi markets globally.

In addition to facilitating debt market growth, the CMA is committed to developing regulatory frameworks for green, social, and sustainable debt instruments. 

Cotzias emphasized that the lack of international standardization for sustainable finance products presents a challenge but added that the CMA’s efforts to align with global practices will attract more investment into green finance. 

“Saudi Arabia can draw inspiration from frameworks like the EU’s Green Bond Standard, which reduces greenwashing risks and improves comparability,” he said.

The CMA’s green sukuk initiative is a significant milestone for the Kingdom’s environmental, social, and governance goals. Nikkar pointed out that Saudi Arabia’s competitive edge lies in its ability to combine Islamic finance with global sustainability goals. 

“Green sukuk aligns with international best practices while leveraging Saudi Arabia’s leadership in Islamic finance,” he explained.

The CMA’s goal is to increase the stock market’s value to 80.8 percent of gross domestic product by 2025, up from 66.5 percent in 2019. This will be achieved by expanding investment opportunities, including sustainable and green sukuk, and by simplifying regulatory procedures to encourage more companies to list on the market.

Focus on fintech and innovation

The CMA’s strategy places significant emphasis on supporting financial technology innovation. 

As Nikkar noted, the regulatory flexibility provided by the Fintech Lab allows startups to experiment with new business models in a controlled environment without being subject to the full regulatory burden typically imposed on licensed capital market participants. 

This fosters a dynamic fintech sector while ensuring consumer protection.

By encouraging fintech growth, the CMA is enhancing the overall efficiency and competitiveness of the financial market. This initiative will not only benefit startups but also push traditional financial institutions to innovate and offer better services to meet the evolving needs of investors.

Rauchenwald added that the CMA’s focus on fintech innovation, combined with its risk-based supervision model, will reshape the competitive landscape for banks, brokers, and asset managers in Saudi Arabia. 

“Fintech growth will disrupt traditional players, prompting them to innovate and compete more aggressively,” he said.

Achievements and future targets

The CMA’s 2024-2026 plan builds on the successes of its previous 2021-2023 strategy, which saw a 52 percent increase in the number of listed companies — rising from 204 in 2019 to over 310 by the end of 2023. 

The value of managed assets also grew by 74 percent during this period, reaching SR871 billion ($231.9 billion).

Rauchenwald highlighted the significance of the new procedures for class action compensation, which allow groups of investors to file lawsuits collectively and seek compensation for misconduct. 

“This is a major step forward in promoting investor confidence and holding companies accountable,” he said, comparing it to global standards seen in the US and Europe.

Looking ahead, the CMA aims to continue growing the asset management industry by introducing more flexible regulatory frameworks for investment funds. 

Cotzias noted that easing regulatory barriers for foreign investors will be critical in boosting Saudi Arabia’s competitiveness, especially in sectors such as real estate, renewable energy, and technology.

International competitiveness

One of the key goals of the CMA’s 2024-2026 strategy is to enhance the Saudi financial market’s international appeal. 

By implementing regulatory reforms, improving transparency, and promoting ESG-aligned financial products, the CMA aims to position Saudi Arabia as a leading regional and global financial hub.

Nikkar emphasized that diversifying financial products, particularly in Islamic finance, will help Saudi Arabia stand out against regional competitors like Dubai and Qatar. 

“The Kingdom’s leadership in Islamic finance, combined with its commitment to sustainability, gives it a competitive edge in attracting both regional and international investors,” he said.

In terms of attracting foreign investors, Cotzias pointed out that the CMA’s review of foreign investor restrictions, including simplified registration and increased ownership limits, will enhance Saudi capital markets’ appeal to global investors.

Investor protection and governance

Central to the CMA’s strategy is the protection of investors’ rights. The authority plans to strengthen corporate governance practices across listed companies and investment funds. 

According to Cotzias, these governance reforms are expected to raise the accountability of board members, improving investor trust in Saudi financial institutions.

The CMA’s focus on improving transparency and supervisory mechanisms will also enhance investor protection. By simplifying procedures for compensation and complaints resolution, the CMA aims to create a more transparent and accountable market environment.

RIYADH: Saudi Arabia’s Public Investment Fund is set to be ranked second among the world’s sovereign wealth bodies by 2030 with $2 trillion in assets under management, according to monitoring organization Global SWF.

A report from the firm forecasts PIF will more than double its current AuM value of $925 billion by the end of the decade, and rise from its 2024 ranking of sixth among global state-owned investor funds.

According to projections from the institute, PIF’s AuM in 2030 will represent 10.5 percent of the global sovereign wealth funds’ total assets, which are set to reach $19 trillion, as it rises from sixth place

Diego Lopez, founder and managing director at Global SWF, said: “Capital attracts capital — so international financial institutions are attracted in partnering with a player with such a huge balance sheet and role in the economic development.”

According to the report, to achieve its ambitious goal of reaching $2 trillion by 2030, the PIF will depend on a combination of strategies. These include oil revenue allocations, which refer to the portion of the Kingdom’s oil earnings transferred to the PIF, debt issuance, and returns generated from its investments.

“Saudi Arabia needs to make its capital base sustainable, diversified and resilient to lower levels of oil prices,” Lopez told Arab News.

“That means raising debt, as PIF has been doing, and eventually raising equity through subsidiaries that can act as asset managers — we see this working very well in Abu Dhabi with Mubadala Capital, Lunate, etc,” he added.

According to the report, the PIF’s 10-year annualized return from 2013 to 2022 stood at 6.9 percent, outperforming the sovereign wealth fund average of 5.7 percent annually.

In 2024, the global economy showed resilience despite geopolitical risks and market uncertainties, with global GDP growth projected at 3.2 percent, slightly improving to 3.3 percent in 2025, according to the OECD.

The International Monetary Fund forecasts a subdued five-year outlook of 3.1 percent, reflecting weaker growth in China, Latin America, and the EU. Developed markets are facing slower growth due to tightening monetary policies, while developing economies maintain greater stability.

Central banks, led by the US Federal Reserve, began easing rates in 2024, responding to reduced inflationary pressures. According to the report, as the global economy adapts, sovereign wealth funds are increasingly focused on capital preservation and stimulating foreign direct investment, with those in the Middle East and North Africa region entering a new phase of growth.

Saudi Arabia offers robust economic expansion fueled by diversification initiatives and ambitious mega-projects like NEOM, the Red Sea Project, and Qiddiya.  

PIF’s investments are strategically positioned to capitalize on these high-growth areas, making it a gateway for investors seeking exposure to dynamic emerging market opportunities.

GCC sees greater international attention

According to the report, global sovereign wealth funds have, for the first time, surpassed $13 trillion in assets under management, with capital heavily concentrated in two key regions — the Gulf Cooperation Council, holding 38 percent of the total, and Southeast Asia at 10 percent.

Interest in these powerful global investors remains strong, the report said, drawing heightened international attention to the GCC, a region with fewer than 60 million residents.

Previously named the “Region of the Year” by Global SWF, the GCC has seen a wave of global asset managers and bankers establishing local offices to capitalize on burgeoning opportunities. According to the report, the GCC-Southeast Asia axis is expected to continue driving growth across the sovereign wealth landscape.

PIF represented 7.11 percent of MENA’s sovereign wealth funds’ AuM, with assets totaling $925 billion. 

Leading the rankings is Abu Dhabi Investment Authority at $1.11 trillion, followed by Kuwait Investment Authority with $969 billion.

Global sovereign wealth fund investments totaled $136.1 billion across 358 transactions in 2024. The “Oil Five” — ADIA, ADQ, PIF, QIA, and Mubadala — maintained their dominance, together accounting for 60 percent of the total investment value, amounting to $82 billion. As a result, they secured positions among the top 19 dealmakers of the year.

This marks a significant rise from $74 billion in both 2023 and 2022, $41 billion in 2021, $39 billion in 2020, and $28 billion in 2019, reflecting the accelerating investment momentum of these sovereign wealth giants.

While some Gulf sovereign wealth funds leaned toward emerging markets, including their domestic economies, developed markets remained the dominant choice for most global sovereign investors.

Saudi Arabia’s PIF, Abu Dhabi’s ADQ, and Qatar’s QIA exhibited a preference for emerging markets, reflecting their strategic focus on regional and high-growth economies.

PIF investments

According to the report, a significant factor driving the PIF’s growth is its projected boost in domestic spending to $70 billion annually by 2025.

The fund’s investment strategy is focused on high-growth sectors, including infrastructure, digitalization, AI, and renewable energy.

Among the top 15 largest global investments by sovereign wealth funds in 2024 was PIF’s $3 billion acquisition of a 51 percent stake in Saudi Arabia’s TAWAL and $2.16 billion of a 40 percent stake in Selfridges in the UK.

Other significant investments for the PIF include a 15 percent stake in Heathrow Airport for $1.8 billion.

According to the institute, the largest deals are consistently pursued by a select group of funds known for their substantial firepower and risk appetite. This group includes the top 10 spenders, with the GCC’s “Big 5” leading the way.

Mubadala emerged as the leading sovereign investor in 2024, deploying $29.2 billion across 52 deals, a 67 percent increase from the previous year. It was followed by GIC at $26.6 billion, CPP with $21.1 billion, PIF at $19.9 billion, and ADIA at $17.1 billion.

PIF has also ventured into artificial intelligence and space, co-investing in Databricks and launching Neo Space Group to advance Saudi Arabia’s satellite industry.

These initiatives reflect the fund’s commitment to positioning Saudi Arabia as a leader in global digital and technological innovation.

PIF saw a 24 percent decline in its US equity portfolio, the report said. At the beginning of 2024, the fund sold shares in 18 companies worth nearly $13 billion, including pandemic-era investments like gaming giant Activision Blizzard, cruise leader Carnival, and entertainment company Live Nation, which yielded strong returns.

According to Lopez: “The sale of the listed equities was about monetizing a huge upside from their purchase during covid, rather than about decreasing the overseas portfolio.”

The expert noted the importance to recognize that while PIF’s domestic portfolio may be growing relative to its international holdings, the overall assets under management continue to expand, with significant investments being made outside the Kingdom.

PIF has also made significant investments in the electric vehicle sector, despite facing challenges with earlier ventures.

In 2019, PIF divested from Tesla but doubled down on Lucid Motors, placing a major bet on the EV manufacturer.

This strategic move has required substantial funding, including $2.8 billion in 2024 alone. Despite the financial commitment, PIF remains focused on its long-term vision for Saudi Arabia, supporting Lucid’s growth with a manufacturing facility in King Abdullah Economic City.

In January, Lucid Motors became the first global automotive company to join the Kingdom’s “Made in Saudi” program, reinforcing the country’s push to strengthen its industrial capabilities.

The program also supports Vision 2030’s goals of attracting investments, boosting non-oil exports, and creating sustainable jobs, while positioning Saudi Arabia as a hub for innovation and manufacturing in the EV sector.

PIF’s debt financing

On Jan. 6, PIF announced the completion of its inaugural $7 billion murabaha credit facility, supported by a syndicate of 20 international and regional financial institutions.

This Shariah-compliant financing structure is part of the fund’s medium-term capital raising strategy, aimed at diversifying its funding sources to support transformative investments both globally and within Saudi Arabia.

According to another report published by Global SWF in January, PIF’s use of debt financing mirrors a growing trend among sovereign wealth funds and public pension funds, which have raised around $700 billion over the past two decades.

Despite strong credit ratings from Moody’s and Fitch, PIF faces pressure from surging domestic investment in giga-projects like NEOM and Qiddiya, with annual funding needs expected to rise from $40 billion in 2023 to $70 billion by 2025.

Sustaining investor confidence will depend on its ability to manage financial obligations and execute Vision 2030 goals.

While markets currently support PIF’s sovereign-backed debt, delays or disruptions could strain resources and affect its ambitious agenda, making its financing strategy critical for both national economic transformation and global sovereign investment trends.

However, PIF’s diversified funding strategy, coupled with its ability to attract global partnerships, positions it as a transformative force capable of reshaping Saudi Arabia’s economic future and reinforcing its role as a leading driver of global investment innovation.