Summary List Placement
It seemed like an April Fool’s joke.
John Micklethwait, the Oxford-educated editor in chief of Bloomberg News, went on TV on April 1, 2016, to report that Saudi Arabia was going to start a $US2 trillion investment fund.
“An amazing thing,” Micklethwait called it. “If you think about it, it’s enough to buy Google, Microsoft, Alphabet” -Google’s parent company – “the whole lot of them. Warren Buffett.”
Saudi Arabian Crown Prince Mohammed Bin Salman had revealed the plan during a five-hour interview in which he outlined his strategy to reinvent the Saudi economy. His ideas made sense, in the abstract, to foreign economists and business leaders. Mohammed would use cash from the Aramco IPO to invest in new industries, giving his country new sources of income beyond oil.
But no one could figure out how it would work in practice. Was it possible to pour that much money into global markets without inflating a giant bubble? And who would Mohammed put in charge of managing the investments? The man currently heading the sovereign fund, Yasir al-Rumayyan, was chiefly known, at home and abroad, as an easygoing luminary of the Riyadh golf community who had a taste for fine cigars and after-hours bars in Dubai frequented by long-legged, short-skirted Russian women.
Sceptical or not, the Western attention alone was a victory for the prince. By the end of April, he’d be on the cover of an issue of Bloomberg Businessweek magazine detailing the transformation plan for Saudi Arabia that the consultants had prepared. Vision 2030 had taken hundreds of Saudi and foreign consultants months to finish, and it laid out broad goals the United States and World Bank had been suggesting for years. An economy with incentives for entrepreneurship and innovation and freedoms for women to join the workforce would certainly create a stronger nation, the foreigners argued.
Mohammed’s plan set an almost ludicrously ambitious timeline for reaching those goals, considering Saudi Arabia was a country with roughly the same economic structure as when oil money started flowing roughly a half century earlier. “All success stories start with a vision, and successful visions are based on strong pillars,” the Vision 2030 statement said. The three pillars were making Saudi Arabia the heart of the Arab and Islamic world, becoming a “global investment powerhouse,” and turning the country into a “global hub connecting three continents” and an “epicentre of trade.”
Once the announcement was made, Mohammed knew he needed to show progress quickly. In the ensuing weeks he grilled Saudi officials and foreign consultants alike on how they could show their ideas were working. He’d lose patience with, say, the finance minister and turn instead to the Ministry of Economy and Planning for an urgent task. “The principals changed every week. The wheel gets reinvented every few days,” a person working for BCG complained.
The sovereign wealth fund debut showed the world Mohammed was planning to spend. A month later he hosted US Secretary of State John Kerry on his yacht the Serene. But he still needed a splashy deal to introduce the Public Investment Fund (PIF) as the new investor on the block.
Not long before, Mohammed had been introduced to Travis Kalanick, founder of the then hot startup Uber. The men developed a rapport – the prince would later call the entrepreneur a friend – and Mohammed saw Uber as an attractive investment. The business press fawned over the company. It was expanding quickly all over the world and could play a big domestic role in Saudi Arabia, with women still prohibited from driving. Mohammed and Kalanick discussed an investment. At the beginning of June, the fund wired a total of $US3.5 billion to Uber. For that, Mohammed became the biggest investor in the world’s hottest tech startup, and he got his staffer, the fund’s chief Yasir al-Rumayyan, on Uber’s board. He’d proven the kingdom was doing something differently.
The investment would be the first instance of many in which Western businessmen, consultants, and bankers promised the world to the young prince but failed to deliver. Investing in Uber didn’t earn him a financial return. Nor did Uber invest in Saudi Arabia in a big way. In effect, Saudi Arabia doled out $US3.5 billion for the privilege of announcing it was an investor in Uber. It would likely get its money back, but without an impressive return.
A veteran of Middle Eastern sovereign wealth funds who has grown cynical over the years explains how it works for Gulf investors. All the best deals and opportunities are seized upon by big American institutions with the help of New York City banks. The second-tier deals go to the Europeans. And the lemons are packaged up and rebranded for what derisive bankers call the “dumb money” in the Middle East. “They don’t care about us,” he said. “They only want our money.”
Days later Mohammed headed to Silicon Valley.
Executives were eager to greet the prince. In pressed jeans and a blazer, Mohammed posed for photos with Mark Zuckerberg and visited Google’s founders.
The reception was less effusive among the venture capitalists (VCs) whose ranks Mohammed wanted to join. While entrepreneurs were hungry for Saudi money, the VCs were a different breed. Often pompous, driving Teslas to their low-slung offices on Sand Hill Road in the hills above Palo Alto, they specialised in making small deals in early-stage startups that could pay giant returns in the unlikely event of success. Their industry was booming. The last thing the successful VCs needed was a prince with hundreds of billions of dollars inflating the valuations of new startups and telling them how to do their jobs.
“We don’t need your money,” one prominent VC told an emissary of Mohammed’s ahead of his visit to California. “We’ve got plenty.” Another explained that his firm already had Saudi money, irritating the prince’s entourage since this money manager apparently didn’t know the difference between money from some rich Saudi individual and the opportunity that Mohammed was offering to manage money for the Saudi state.
The only VCs who seemed truly eager to meet the prince were those at the other end of the spectrum, the ambitious up-and- comers who also upset the prince’s entourage by boasting that they had an in with the Saudis. One was Joe Lonsdale, a cofounder of the data analytics firm Palantir who had worked with the successful VC Peter Thiel.
Ahead of the visit, investors recall, Lonsdale told them he had Saudi investment, when in fact he had a modest sum from a son of the energy minister. It was far from a relationship with the kingdom’s government. Asked about the claim, Lonsdale said it was “not appropriate to share” the names of people whose money he managed and that he never boasted about having Saudi investment. Lonsdale says he ended up not pursuing investments from the region. “It seems in those societies many make money by peddling connections, versus building things or applying intellectual rigour,” he later said.
But the more established VCs’ attitudes seemed to change at a dinner at the Fairmont Hotel atop San Francisco’s Nob Hill. “I need a bridge between Saudi and Silicon Valley. I need you to help our reforms,” Mohammed told a group that included Marc Andreessen, Peter Thiel, John Doerr, and Michael Moritz, titans of venture capital with decades of experience backing startups that turned into multi-billion-dollar corporations.
As the prince saw it, the venture capital model could be scaled indefinitely. If they made huge returns on relatively modest investments, imagine how much they could make if he boosted their capital tenfold. After the dinner, Doerr put his arm around the energy minister, Khalid al-Falih, and excitedly told him, “Together, we’re going to remake the energy industry.”
But the Silicon Valley VCs couldn’t move quickly enough for Mohammed. They were set in their old ways of making small investments. Mohammed wanted to make giant investments, and he wanted to do it right away. Before the VCs could figure out a way to accommodate him, the prince met a like-minded maverick investor from Japan who promised to circumvent the Valley’s old guard. First, though, there were some pesky voices that needed dealing with.
Excerpted from Blood & Oil: Mohammed bin Salman’s Ruthless Quest for Global Power, by Bradley Hope and Justin Scheck. Copyright © 2020. Available from Hachette Books, an imprint of Hachette Book Group, Inc.
Bradley Hope, based in London, is The New York Times bestselling coauthor of Billion Dollar Whale (optioned for film by SK Global) and covers finance and malfeasance for The Wall Street Journal. Before that he spent six years as a Middle East correspondent. Hope is a Pulitzer Prize finalist and Gerald Loeb Award winner.
Justin Scheck, based in New York, has worked at The Wall Street Journal since 2007, covering white collar crime across four continents. He has been writing about Saudi Arabia since 2016. Scheck is a Pulitzer Prize finalist.
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