Saudi Arabia 2018 | FINANCE | VIP INTERVIEW

TBY talks to HE Mohammed bin Talal Al-Nahas, Governor of the Public Pension Authority (PPA), on the changes underway in Saudi Arabia, green energy, and investment strategies for the company.

How will the PPA participate in the sweeping changes in the country?

PPA participates by aligning itself with the different strategic objectives, targets, outcome-oriented initiatives, and commitments achievable through public-private partnership (PPP) efforts currently underway. PPA will take advantage of deal access and priority privileges to participate in the different investment opportunities arising from the privatization efforts of previously government-owned assets and services. To further enhance our ability and readiness to take advantage of new opportunities, PPA has also invested in strengthening its internal institutional and human capabilities as well as studying new best international models and practices for pension funds' investments.

How have recent economic and budgetary changes affected PPA's returns, and how has it changed its management to reflect this new era?

Undoubtedly, the recent economic environment has impacted the performance of our pension portfolio; however, PPA's investments are well diversified across asset classes globally, thereby offsetting to some extent the impact of underperformance of our local market on the overall portfolio. This strategy will continue in exploring new investment opportunities coupled with developing a stronger risk management function.

Saudi Arabia has made extensive commitments to green energy. How might the PPA participate in this aspect of the country's development?

PPA has already demonstrated its support of initiative in this sector through investment in ACWA Power, a unit of ACWA Holding Company, and we will remain open to investment opportunities that emerge in the renewable energy space.

There is a shift in the country from the public sector providing much of the capital for major projects to the private sector playing a leading role. How will this change the PPA's investment strategy? Will you seek international and local partners for investments in a different way?

Vision 2030 strongly promotes private sector involvement in both old and new sectors and provides myriad opportunities spanning social and community-related projects—such as housing, health clubs, and public facilities—and the education, healthcare, municipal services, tourism, energy, environmental, industrial and manufacturing, oil and gas, technology, and transportation sectors. PPA will continue to view and evaluate investment opportunities both from a micro and a macro perspective by taking advantage of local and international investment opportunities identified through our research that fall within the constructs of PPA's strategic investment objectives.

There are reports that the King Abdullah Financial District may be sold to the Public Investment Fund (PIF) in the medium term. What is the future of that project, and does real estate remain a sector of focus for PPA?

King Abdullah Financial District is still under negotiation, and hence we cannot really expand on that comment. However, we have other real estate projects, such as the 7,345-unit development in Jeddah and Digital City in Riyadh. Real estate is an important part of an efficient investment portfolio and therefore we will continue to have an allocation to it as long as valuations are attractive.

Although pension funds have performed well locally, they are still an emerging industry when compared to capital per capita and percentage of GDP measures for countries such as the UK. What changes are key to spurring growth in the sector?

Growth in the sector is mainly a function of the size of the participants within each pension scheme, changes in demographic profile of the contributors and pensioners, and the scheme structure. It also depends on the ability of the scheme to adapt to various local ambitious development plans and global economic developments, and manage its investment portfolio suitably.

What are you plans and expectations for the year ahead, as well as your most immediate priorities in that timeframe?

Our immediate priority is to implement our goal of creating a new asset management company that will run leaner, and be more focused on becoming a trusted leader in investments, and to deliver the services needed by our contributors and pensioners though various channels.