By Eliot Brown

Saudi Arabia's sovereign-wealth fund has swelled over the past half decade to hold $1.2 trillion in assets.

But the Public Investment Fund's vast portfolio is showing little in terms of returns on its investments, with most of the growth coming from government injections and borrowing, according to its annual report published Tuesday.

Weighed down by megaprojects with unrealistic designs and costs, dalliances in sports such as LIV Golf and lackluster tech investments in recent years, the fund's sluggish growth on its own is a major challenge to the kingdom's stated plans to reach $2 trillion in assets by 2030.

Of PIF's $532 billion in asset growth since 2021, more than 60% — $340 billion — came in the form of contributions from the government, which handed PIF large chunks of stock in Saudi Arabian Oil Company, known as Aramco, according to figures released by the fund. Another 20%, or $107 billion, came from additional loans and bonds, which need to be paid back.

The performance adds to the list of fiscal challenges in the country, where budget deficits were swelling and giant projects floundering even before the war in Iran. Now the kingdom is expected to face huge bills for defense and for pipelines and rail lines that could help protect the country from the economic sting of another attack.

"There's going to be enormous demands on the government to spend on defense" and infrastructure, said Karen Young, a senior fellow at the Middle East Institute.

PIF, she said, will likely need to focus on generating more returns, and will need to sell or list publicly some of the companies in its vast portfolio.

In a statement accompanying the financial report, PIF highlighted growing profits, which hit $17 billion in 2025, and a cash pile of more than $90 billion, which the fund said gives it "significant firepower required to successfully execute its investment strategy."

The struggles come at a time when the global stock market has been surging upward — the S&P 500 grew 86% between 2022 and 2025 — and many competing wealth funds have enjoyed far better returns.

Earlier this year, the fund announced it was reorienting its strategy, pulling back from many of its giant projects that were proving unaffordable, while trying to focus on sectors such as AI and domestic tourism.

Some of its lofty goals seem unchanged. Fund governor Yasir Al-Rumayyan said at an event at Washington, D.C.'s Economic Club in September that the PIF was still on track for $2 trillion in assets by 2030. "There's a good chance for us to be $3 trillion," he added.

The PIF was a critical part of Saudi Crown Prince Mohammed bin Salman's Vision 2030, a vast plan launched in 2016 to pivot the kingdom's economy away from oil.

Saudi leaders pledged to supercharge the previously overlooked collection of local companies and conservative investments and turn it into the world's largest wealth fund — following the model of other Gulf countries.

It was given a twin mission of traditional profit-seeking investments as well as local economic development — putting PIF in charge of everything from giant megaprojects around the country to building a new airline.

Some efforts have shown promise in the portfolio: Many of its Riyadh developments are popular and expanding quickly, while its investments in areas such as mining and banking have shown strong revenue growth.

Many of its highest-profile foreign investments have proved humdrum, including the $45 billion the fund put into the SoftBank Vision Fund, a startup fund that has lagged well behind the Nasdaq.

More painful were investments including LIV Golf, in which the fund pumped billions of dollars in a failed attempt to build a competitor to the PGA. It scrapped the effort this spring.

Tens of billions of dollars were wasted on Neom, where the kingdom began work on a planned futuristic city of nine million people. Most of the work was abandoned earlier this year, leaving 75 miles of trench where a rail line and a pair of 1,600-foot-tall skyscrapers were meant to run.

In its financials Tuesday, the PIF reported writing off $12.4 billion in investments on unnamed capital projects in 2025 and $17 billion in 2024.

Write to Eliot Brown at Eliot.Brown@wsj.com