Saudi fund bets on private credit with $3 billion plan amid Riyadh's efforts to diversify economy away from oil

Saudi Venture Capital (SVC), a state-backed investment firm, is reshaping its $3 billion investment strategy to allocate more money into private credit funds, betting that the asset class will capture a larger share of business in the kingdom.

The firm that primarily functions as a fund of funds plans to allocate half of its total investments to private credit and equity combined. This marks an increase from about one-third of its portfolio allocation last year.

The rest of its investments will continue to support venture funding, the company told Bloomberg.

What is the rationale behind this change?

According to CEO Nabeel Koshak, this portfolio re-designing strategy is based on the “evolution and growth of the ecosystem”. A key driver is the nascent stage of private credit in Saudi Arabia. Koshak noted that SVC intends to raise awareness about how private credit complements existing financing options by filling the gap in SME financing.

Companies in Saudi Arabia, including small and medium-sized enterprises, are increasingly turning to new sources of financing as tightening liquidity conditions are making it harder to secure traditional capital through banks, according to Koshak.

Broader economic context and regional growth

The SVC chief spoke ahead of the Private Capital Forum in Riyadh on Wednesday, where the fund will gather investors and policymakers for discussions on regulatory challenges and financing gaps in the market.

The increased need for diverse financing has become acute in Saudi Arabia as the kingdom seeks to drive spending under Crown Prince Mohammed bin Salman’s plan to diversify the economy away from oil. This diversification aims to establish the kingdom as a hub for entrepreneurship, finance and investment.

The focus on private credit and equity is also mirrored across the broader Middle East Gulf region, where demand for these asset classes is growing, Bloomberg reported.

Other major players, like the Public Investment Fund (PIF) are also entering the private credit space, anchoring new funds from Goldman Sachs Asset Management focused on the Gulf. Venture debt is also showing signs of growth, with firms like Stride Ventures deploying capital in the kingdom.

SVC's recent activity

Launched in 2018, SVC has a mandate to invest $3 billion by 2030 to develop the financing ecosystem for startups and SMEs. The CEO indicated that the firm intends to maintain its recent investment pace through 2026. It has invested about $300 million each year.

The firm has recently begun pivoting to private credit and venture debt, with investments in Partners for Growth and Ruya Partners. It has also backed PE giants, including General Atlantic and VC funds like Global Ventures, Bloomberg reported.