Saudi Arabia’s Super Fund Leans on Influence of BCG Power Broker

(Bloomberg) -- Saudi Arabia’s plan to use its massive sovereign wealth fund to pursue grand ambitions has helped create a $1.8 billion bonanza for global consulting firms.

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One man signifies the success those companies have had in winning influence in the kingdom: Ihab Khalil, a Boston Consulting Group senior partner.

While he doesn’t appear on any organizational chart at Saudi Arabia’s $620 billion Public Investment Fund, people who work with or at the state-owned entity describe him as a behind-the-scenes power broker who’s instrumental in the fund’s emergence as one of the world’s largest investors and in developing plans to help overhaul the kingdom’s economy.

Khalil has the ear of Yasir Al-Rumayyan, PIF’s governor, and has led recent in-house meetings on strategy, according to people familiar with the organization’s operations, who asked not to be identified because internal processes are private.

While PIF has two executives in top strategy positions, half a dozen people inside and close to the fund say Khalil acts in a more senior manner because of his access to key players. In a sign of his prominence, the kingdom -- which doesn’t recognize dual nationalities -- took the rare step last year of granting Saudi citizenship to the native of Lebanon.

As the main vehicle for Crown Prince Mohammed Bin Salman to diversify the oil-based economy, PIF has snapped up stakes in US blue chips like Uber Technologies Inc., supported last year’s listing of Lucid Motors Inc. and is in the process of developing a new $500 billion city.

As PIF pursues a target of tripling assets under management to $2 trillion by 2030, Khalil’s role sheds light on the inner workings of one of the world’s most important sovereign wealth funds and underscores the influence external consultants play in Saudi Arabia’s transformation.

Even after consulting work in the country came under scrutiny by US officials in the wake of the 2018 murder of columnist Jamal Khashoggi, fees have exploded. The 19% growth rate in Saudi Arabia’s consulting market outpaced all other Gulf countries, according to Source Global Research.

The work by consulting firms could become controversial again amid fresh tensions after US President Joe Biden pledged to reevaluate ties to Saudi Arabia, following a decision by the OPEC+ oil cartel to cut production.

BCG said in a response to Bloomberg questions that Khalil isn’t on assignment at PIF and therefore “he does not act in any way” on behalf of the fund, adding that strategy is managed by “full-time PIF Senior Directors.”

The Saudi sovereign wealth fund said the consultant is “a Senior Managing Director with BCG who advises PIF.”

MBS, as Saudi Arabia’s de-facto ruler is known, is “in a great hurry to change things around and to get the country moving in the direction of economic diversification and social liberalization,” said Bernard Haykel, a professor of Middle Eastern studies at Princeton University who has met the crown prince.

BCG declined to make Khalil available for comment and efforts to contact the consultant, who is in his early 40s and splits time between Riyadh and Dubai, were unsuccessful.

BCG Inroads

The scope of Saudi Arabia’s transformation -- including PIF’s The Line, a 170-kilometer (106-mile) urban corridor without cars or roads that’s part of the massive Neom development -- has provided ample opportunity for outside experts.

In 2016, consultants played such a prominent role in helping draft the kingdom’s economic overhaul that the Ministry of Economy and Planning was nicknamed the Ministry of McKinsey due to the firm’s close ties to the government.

Since then, BCG -- which counts Saudi Arabia as one of its biggest markets -- has emerged as the clear leader, thanks in part to its ties to PIF. The firm declined to disclose regional financial details.

At least 100 consultants have been enlisted to work with PIF and affiliated entities, including a sizable contingent from BCG, the people said. The fund employs about 1,700 people, according to a recent bond prospectus.

PIF said the fund and its portfolio companies have used various international consulting firms in line with comparable financial institutions as it creates “new ecosystems, cities, sectors, companies, and high-quality jobs.”

“There is nothing unusual about this usage,” PIF said in a response to Bloomberg questions.

Over the past five years, PIF has spearheaded a push into electric cars and made forays into sports, buying English soccer team Newcastle United and investing at least $2 billion in an international golf venture.

On its website, PIF doesn’t specify how strategy is run. Dennis Johnson left the role of chief strategy officer in 2020 after about two years. He appears to have two successors: Chad Richard, head of strategy development and integration, and Abdullah Alsalem, head of strategy and planning.

Richard was a partner at BCG before joining PIF to take his current role in February 2020. Alsalem, a PIF staffer since 2016, is also head of project management and added the strategy job in January 2020, according to their respective LinkedIn profiles.

In recent interactions, Khalil has led meetings and presented himself as the senior strategy official, even with PIF counterparts on hand, according to people involved in the discussions.

Khalil has a PIF email address, albeit with a prefix “con” that is generally used to indicate when someone is a consultant, the people said.

Foreign Agent

His connections to Saudi Arabia became more entrenched last year, when he and three other people were granted citizenship for “outstanding capabilities” and “rare specialties,” according to local media. The government’s Centre for International Communications didn’t respond to requests for comment on why Khalil was allowed to become a citizen.

Khalil, who was born in 1978, has a masters degree from international business school INSEAD. He worked for Booz & Co. before joining BCG in 2014, just before PIF was transformed into an investment force by MBS. In 2020, Khalil registered with the US as a foreign agent for the Saudi Council of Economic and Development Affairs, according to a US filing.

The success of BCG and other global consulting firms is a marked contrast to efforts by Wall Street banks to gain a larger foothold in the country. Fees from a pipeline of initial public offerings remain lower than international levels as the deals get split with local banks.

Large consulting firms have faced scrutiny in the past over their business dealings with Saudi Arabia. In 2018, US Senator Elizabeth Warren pressed BCG and Booz Allen Hamilton to disclose their work related to the country. Outcomes of that initiative haven’t been made public.

Hiring outside consultants is also a sensitive topic in Saudi Arabia. Starting in 2024, the government and state-backed institutions have said they will stop signing contracts with foreign companies that base their Middle East headquarters in any other country in the region.

©2022 Bloomberg L.P.