WWD : JD.com Renews Commitment to London, Doubles Down on Fashion With $140 Mill

JD.com Renews Commitment to London, Doubles Down on Fashion With $140 Million Investment
The Chinese e-commerce giant will return to London Fashion Week on Sunday with a fashion show spotlighting the brands Hazzys, Ellassay, Marisfrolg and Pure Tea.

LONDON — Chinese e-commerce giant JD.com on Friday will reveal a new partnership with the British Fashion Council, WWD has learned.

It will become the official Asian online retail partner for London Fashion Week, and host a fashion show on Sunday.

The renewed alliance aims to enhance the presence of British and international fashion brands in the Chinese market and create a global platform for Chinese and Asian designers, JD.com said.

Caroline Rush, chief executive officer of the BFC, said the partnership provides emerging designers and brands with a platform that “facilitates smoother collaborations across borders but also amplifies their exposure in the crucial Chinese market.”

The partnership is part of JD.com’s pledges of money and resources worth up to 1 billion renminbi, or $140 million, to the industry overall.

“Fashion has always been regarded as a very important part of our business,” said Sherrin Kong, vice president of JD.com and president of JD Fashion.

Since the start of the year, JD.com has seen a 60 percent uptick in the number of leading apparel and footwear brands and a 200 percent jump in the number of third-party apparel merchants on the platform, she added.

Kong said the $140 million will be used to populate the site with more fashion items from around the world, and to satisfy JD.com’s 600 million annual active users in China.

“As the second fashion market in the world, there is a big appetite for niche, designer brands in China. We are in a unique position to utilize our digital e-commerce capabilities to help them find their corresponding customers,” Kong said.

She added that JD.com can also leverage its on-the-ground, sophisticated supply chain operations and help independent designers who perhaps cannot afford a local e-commerce partner.

The company has looking at other ways to get more brands on the site. Earlier this year JD.com began experimenting with sourcing fashion from brands directly, working with buyers stationed in London, Milan and Paris.

In January, JD.com launched its first fashion goods cross-border direct procurement warehouse in suburban Paris. The 32,300-square-foot facility in Val-d’Oise provides fulfillment solutions for European brands that want to sell directly to Chinese consumers.

“In a way, we have an in-house operation team. Brands can entrust us with their products and we can provide a series of services including marketing, logistics, customer service and returns, in addition to discounts on commission charges. We have received positive feedback so far since we can shorten the journey from brand to customer and improve efficiency in the process,” Kong said.

As part of the wider investment, JD.com will offer additional incentives, such as daily opportunities for customers to enjoy a 30 renminbi discount on purchases of 300 renminbi, or more.

A big chunk of the investment pledge will go into consumer education as well.

“JD.com is heavily associated with selling electronic appliances. How to persuade our existing customers to shop fashion will be the next subject that we as a team are going to solve,” Kong added.

JD.com is no stranger to global fashion partnerships. Since 2015 it has done events in Milan, London and New York. In 2019, it signed a three-year partnership with London Fashion Week to become its exclusive Chinese retail partner.

With the pandemic now consigned to the past, Kong said it’s high time for JD.com to resume its commitment to London with this new partnership.

On Sunday morning, it will host a fashion show at Somerset House spotlighting leading Chinese brands Ellassay, Marisfrolg and Pure Tea. JD.com is also promoting the Korean brand Hazzys, which does most of its business in China through a licensing deal with the apparel giant Saint Angelo.

“These brands have a strong presence in China. We are here to help them to find the perfect place for them to raise brand awareness on a global stage,” said Kong, adding that JD.com plans to host intimate exhibitions in Paris to showcase customers’ newfound appreciation for traditional arts and crafts.

During her European trip, Kong has meetings lined up with luxury heads as well.

“They know China is important for their business, but they won’t be able to get the full picture just from a few pages of a report from the China team. When they meet with us, we share direct and valuable insight into Chinese consumers and their spending habits. From that, we help them come up with products designed to meet the demand on the ground,” she added.

JD.com has been gaining ground with top-tier luxury players as well.

After its archrival Alibaba was fined $2.78 billion for monopolistic behaviors in 2021, JD.com welcomed Louis Vuitton into its orbit.

Balenciaga, meanwhile, has become the latest brand to open a flagship store on the platform, showcasing an extensive range of items from the fall 2024 collection, and the brand’s latest Stapler Sneaker.

Kong describes the partnerships between JD.com and luxury brands as mutually beneficial. More than 90 percent of the world’s leading luxury brands now sell on JD.com, she claimed.

“It’s been tough for brands this year, but we have been able to grow. What major players like LVMH see in us is our expansive reach. Not only have we got all the first-tier cities covered, but we have penetrated all the lower-tier cities, even villages. Our logistics covers 99 percent of China. No matter where you are, as long as you open the JD.com app, you will be able to place an order,” Kong said.

Kong argued that JD.com also serves as a powerful tool for new user acquisition. Kong said more than 85 percent of the shoppers on JD.com are new to the brands, and around 70 percent of them are between 18 and 35 years old.

The platform’s high level of awareness among university students — more than half of China’s college freshmen purchase personal computers from JD.com each year, according to Kong — also means JD.com can identify and nurture future big spenders from an early stage, a valuable resource brands can tap into.

WSJ : Trump Allies Are Working on Plans to Privatize Fannie and Freddie

Trump Allies Are Working on Plans to Privatize Fannie and Freddie
A deal would call for the government to try to sell a chunk of its holdings in the mortgage giants to investors, including sovereign-wealth funds

Donald Trump’s allies want once again to try to untie the Gordian knot of the mortgage market: what to do with Fannie Mae and Freddie Mac.

Former Trump administration figures and bankers have been discussing plans on ending U.S. government control of the mortgage-finance giants should Trump win the presidential election, according to people familiar with the matter. The talks have been under way since at least this past spring and include reaching out to investment managers for advice on how to get the deal done.

Trump confidants including Larry Kudlow, former director of the National Economic Council, and John McEntee, former director of the White House presidential personnel office, are among those involved, the people said.

“The [former] president himself has never said anything about this throughout the campaign,” a Trump campaign spokeswoman said.

The government’s stakes in Fannie and Freddie could be valued at hundreds of billions of dollars, bankers estimate. That could allow the government to sell more than $100 billion of securities in one swoop, some bankers say. That would top the biggest stock and bond offerings in history and require interest from the largest investors, including sovereign-wealth funds.

Earlier efforts to free Fannie and Freddie from government control, including during Trump’s presidency, failed. Critics worried about the companies’ safety and the impact on the housing market, which relies on their backing. There were also doubts about whether bankers could actually drum up enough money.

A top focus of the talks is ensuring that the companies will be well capitalized so as to not pose a risk to the U.S. housing market. The role of Fannie and Freddie in funding 30-year mortgages, the foundation of the U.S. housing market, has hinged on the government’s full support.

The Trump allies have discussed having the Treasury Department partially back a certain amount of Fannie and Freddie loans through a so-called standby guarantee, the people said, similar to the way the Federal Deposit Insurance Corp. backs deposits below a certain threshold at banks.

Fannie and Freddie purchase and securitize a huge portion of loans in the U.S. residential and commercial mortgage markets. Nearly 40% of the $435 billion of residential loans originated in the second quarter were sold to Fannie or Freddie, according to Inside Mortgage Finance. The two firms owned or guaranteed roughly 40% of the $2.2 trillion in multifamily mortgage debt as of September 2023, according to estimates from their latest annual filings.

Fannie and Freddie operated with implicit government support when they were created but have been under full government control for 16 years. After a 2008 rescue, the Treasury Department took warrants to purchase about 80% of common stock at Fannie and Freddie, as well as senior preferred shares. Other investors can own junior preferred shares, which used to pay a dividend, or common stock.

Trump’s allies and other Republicans view privatizing the firms—or putting nongovernmental shareholders in control—as a way to reduce the country’s deficit and return money to taxpayers.

Opponents of privatization have said that it would decrease access to credit for home buyers and increase the risk for taxpayers.

Different paths being discussed
Trump’s allies are assessing different paths to privatization. One includes bypassing congressional approval and instead proceeding through the Federal Housing Finance Agency, which oversees Fannie and Freddie, and the Treasury Department, the people said.

The FHFA would be key to any plan. It sets the capital requirements and other standards for Fannie and Freddie.

The allies are discussing how to divide any newly found value between the government and other shareholders and avoid drawn-out legal battles.

The preferred and common shares had rallied after Trump’s 2016 election and his 2019 proposals to privatize the companies, only to fall during the Biden administration.

Big investors could profit
Some prominent hedge-fund investors, and Trump backers, have for years been pushing for Fannie and Freddie to be freed from government ownership. Depending on the plan, they could stand to profit handsomely.

Bill Ackman’s Pershing Square owns a roughly 10% stake in the common shares of both Fannie and Freddie.

John Paulson, who is viewed as a potential pick for Treasury secretary under Trump, owns a sizable investment in the preferred shares.

Both Paulson and Ackman have endorsed Trump for president.

“The conservatorship was always intended to be temporary so it makes sense that policymakers release them from conservatorship now that reforms are complete,” a Paulson spokesman said. “The government will be the biggest winner in a release of [Fannie and Freddie].”

FT : Janus to follow BlackRock and Fidelity into tokenisation

Janus to follow BlackRock and Fidelity into tokenisation
Fund group’s move to manage Anemoy means it is joining a trend that observers believe will disrupt the industry

Janus Henderson is to become the latest large asset manager to experiment with securities tokenisation, joining a trend that industry observers believe will eliminate many costs, disrupting the industry.

The $360bn US asset manager plans to take over the management of the $11mn Anemoy Liquid Treasury Fund, which invests in short-term US Treasury bills. Tokenisation describes the process of converting units in a fund into unique digital tokens on a blockchain.

Janus follows in the footsteps of BlackRock, Fidelity International and Franklin Templeton, which are already running tokenised Treasury or money market funds on public blockchains.

It is dipping its toes into the world of on-chain capital markets by assuming the day-to-day running of the Anemoy fund, an open-ended British Virgin Islands-domiciled fund that launched in December and is open to non-US professional investors.

However, Nick Cherney, head of innovation at Janus Henderson, said the move was about “ensuring we are well positioned for the future”.

“There is a real opportunity to participate in and then help shape the future. I think it’s extremely likely that significant parts of the architecture of financial systems moves on to distributed ledger technology,” Cherney said.

“We see significant advantages in the way that financial services are delivered to clients. How this plays out in the next 5-10 years is not totally clear.”

Cherney believed blockchain technology had the potential to “eliminate a lot of steps, burdens and costs. It’s a more efficient way to take financial products and get them into the hands of investors with fewer intermediaries along the way”.

MJ Lytle, chief executive of Tabula Investment Management, the arm of Janus that will manage the fund, said management fees had fallen sharply in the investment industry, but costs had not fallen as fast, resulting in margin compression.

He believed blockchain technology had the potential to help tackle this. “It’s hard with traditional structures to bring costs down at the speed they need to be reduced,” Lytle said.

“Custody, administration, the basic execution and holding of assets, are very intensive processes at this point, with a heck of a lot of human beings involved,” he added.

“If you are one of the big custody and administration providers, it’s very hard to cut your cost base because it’s very difficult to cut the hundreds of thousands of people that work for you.”

“Trustless” decentralised blockchains offer the promise of stripping out some of these costs, Lytle believed. “You don’t need independent third-party custody, clearing etc. You can eliminate all of these costs,” he said.

Martin Quensel, chief executive and co-founder of Anemoy, a “Web3 native” asset manager, said tokenisation allowed investors to trade units in the fund at any time and benefit from “almost instant” settlement.

To facilitate this, it has assembled a network of paid market makers and liquidity providers, Quensel said.

Tokens in the fund, which currently yields more than 5 per cent, can also be used as collateral for other blockchain transactions, said Anil Sood, chief investment officer and co-founder of Anemoy.

He said they provided an alternative to so-called stablecoins such as USDC and Tether, digital tokens that are designed to be pegged to a real world asset such as the US dollar but have zero yield.

These stablecoins have now swelled to a combined market capitalisation of $170bn: if stablecoins were a country, they would now be the 18th largest holder of US Treasuries, ahead of South Korea and Germany, with $120bn of assets as of June, according to Tagus Capital, a crypto investment fund.

Anemoy is planning a second on-chain fund, investing in music-based intellectual property.

Sood, who has a background in exchange traded funds, believed that, in the long term, tokenisation could provide a threat to the fast-growing ETF industry, which is currently eating into the market share of more traditional mutual funds.

“We have seen a lot of people converting mutual funds into ETFs,” said Sood. “There will be a point in the future where this step will be missed out. Mutual funds will go straight into a digitised token structure.”

“When BlackRock, Fidelity, Franklin Templeton and Janus Henderson have participated in this space and they are talking to their clients about this, we know that it’s going to go beyond [its current niche] to mass adoption.

Cherney also believed this might be the case.

“If you go back 20 years in the ETF industry there were a small number of players who understood the ability to disrupt the investment industry. Today that’s obvious to virtually everybody,” he said.

“I think this is as disruptive, probably more disruptive, than ETFs. There is a significant probability that decentralised blockchain technology does to ETFs what ETFs have done to mutual funds.”

FT : HPE chief defends ‘difficult’ decision to pursue $4bn case against Mike Lyn

HPE chief defends ‘difficult’ decision to pursue $4bn case against Mike Lynch estate
Antonio Neri says company will ‘see through’ effort to seek damages in UK court despite death of former Autonomy chief

Hewlett Packard Enterprise chief executive Antonio Neri has defended the “difficult” decision to pursue the tech company’s $4bn civil litigation against the estate of Mike Lynch, saying the move was “in the best interest of shareholders”.

Lynch and his daughter were among seven people who died when his family’s yacht sank off the coast of Sicily last month. They had been celebrating his acquittal on US fraud charges related to Hewlett-Packard’s $11.7bn purchase of Autonomy, the UK software group founded by the UK entrepreneur.

Speaking to the Financial Times, Neri said the acquittal and Lynch’s death had not altered the effort to pursue a separate civil claim over the acquisition.

“Obviously my job as a representative of shareholders is to make the difficult decisions,” Neri said, confirming he did not seek their input. “These are difficult decisions. But in the end, we are making decisions in the best interest of shareholders.”

He added that “obviously what we saw three weeks ago is a sad story. The loss of so many lives, including Dr Lynch. And obviously our thoughts are with them.

“But the reality of what happened does not change what happened in the past decade or so, where we believe wrongdoing was done, and therefore we have to see through the process with the UK judge completing his proceedings,” Neri said.

A spokesperson for the Lynch family declined to comment.

HPE was formed out of the 2015 split of Hewlett-Packard. The company sued Lynch after it suffered an $8.8bn writedown on its 2011 acquisition of Autonomy, accusing it of falsely inflating the company’s revenues.

In 2022 a UK High Court judge found Lynch liable for fraud after a lengthy trial. That same year, Lynch was extradited to the US to face criminal charges.

HPE has been waiting on the same judge to award damages against Lynch and Autonomy’s former chief financial officer Sushovan Hussain, who was convicted of fraud in the US and sentenced to a five-year prison sentence in 2019.

Lynch is survived by his wife Angela Bacares and another daughter. Lynch’s estate is likely to be asked to cover HP’s millions of dollars in legal costs, and the company can also look to pursue his assets, including those passed on to his heirs.

“Remember that [the judge] already ruled that there was wrongdoing and it is now about what damages he will award after he completes his proceedings,” said Neri, who has led HPE since 2018. “So for us it is very normal to see it through.”

Once the judge rules on damages, “we will gather and understand what comes next”, he added. 

Neri said the fact that Lynch and his co-defendant Stephen Chamberlain — who died as a result of a traffic collision in the UK days before Lynch’s yacht sank — had been acquitted in the US did not call the UK civil case into question.

“They are two different cases, independent cases,” Neri said. “A person [Hussain] was already convicted . . . and that basically confirms that wrongdoing was done.”

FT : Russian attacks are breaking EU electricity market, Greece warns

Russian attacks are breaking EU electricity market, Greece warns
Premier raises alarm over ‘extreme’ prices in southern Europe from under-capacity and Ukrainian demand

Greece has warned that Russian strikes on Ukrainian infrastructure contributed to electricity prices more than doubling this summer in south-east Europe, underlining the vulnerabilities of EU energy markets.

Kyriakos Mitsotakis, the Greek prime minister, has called on Brussels to urgently tackle a “prolonged crisis” of capacity that has driven prices to such extreme levels that it requires an urgent “political response”.

In a letter to European Commission seen by the Financial Times, Mitsotakis said that electricity prices had risen in August from €60 per megawatt hour to €130 per MWh. He called on Ursula von der Leyen to use her second five-year term as commission president to “take up the task of pushing through more cross-border capacity” to avoid such spikes in future.

Factors in the surge in prices in Greece, Hungary and Romania include hot weather, outages in electricity generation and low rainfall, which had left reservoirs feeding hydroelectric plants dry.

But Mitsotakis said a key driver had also been Russia’s attacks against Ukraine’s grid. Kyiv was previously a net exporter of electricity but this year has started importing significant amounts of power from its EU neighbours.

After heavy Russian bombardment in the first half of 2024, Ukraine increased electricity imports almost sixfold compared to 2023, according to ExPro Electricity data. “This is another cost that Russia’s devastating war is imposing on our economies,” the Greek leader wrote.

Mitsotakis also requested better oversight of the electricity market, which he called “an incomprehensible black box — even to experts”.

“We feel like there is a mini energy crisis that no one is talking about,” a Greek government official said, ahead of the letter being sent to Brussels on Friday.

Energy prices have become a key concern for policymakers, who are trying to piece together ways to improve Europe’s lagging global competitiveness.

The former Italian premier and European Central Bank president Mario Draghi noted in a major report this week that European companies faced electricity prices that were at least two to three times as much as their US competitors.

“Energy prices have also become more volatile, increasing the price of hedging and adding uncertainty to investment decisions,” Draghi said.

Von der Leyen said following the publication of Draghi’s report that “cross-border energy grids” were an example of “crucial … common European projects” that could potentially be funded from an enhanced EU budget.

The commission has previously estimated that €584bn of investment in electricity grids is needed up to 2030 if the bloc is to meet its ambitious climate goals. It has also set a target for EU member states to have electricity cables that allow 15 per cent of their electricity production to be available to neighbouring countries in the same timeframe.

Mitsotakis, who hails from the same centre-right European political family as von der Leyen, the EPP, also flagged the problem in a speech last week in Thessaloniki, during a press conference in which he underscored the region’s persistent issues with high electricity prices.

“There is a fundamental distortion in the energy market of south-eastern Europe,” Mitsotakis stated. “Something isn’t working right. I don’t expect immediate solutions, but at least let someone deal with it.”

>>> US After Hours Summary: RH +18.5% jumps following earnings, W +4.3% higher i

After Hours Summary: RH +18.5% jumps following earnings, W +4.3% higher in sympathy; ORCL +5.8% on bullish outlook; ADBE -9.1% lower on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: RH +18.5%, RLGT +6%, ORCL +5.8% (raises its FY26 sales outlook, according to Bloomberg), AGI +0.8%, GFS +0.3%

Companies trading higher in after hours in reaction to news: W +4.3% (in sympathy with RH earnings), AUPH +3.2% (restructures its Board; also Tang Capital discloses 5.1% passive stake), WSM +3.1% (in sympathy with RH earnings), KDP +1.3% (increases dividend), GE +0.2% (GE expected to exchange 10 mln GEHC shares to reduce indebtedness to Morgan Stanley), MEI +0.1% (names new chairman), APO +0.1% (acquires majority interest in Freedom CNG), BBW +0.1% (names new Chief Revenue Officer), SAND +0.1% (reports portfolio drilling and exploration activity)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: ADBE -9.1%, EVI -2.7% (also approves a special dividend of $0.31/sh)

Companies trading lower in after hours in reaction to news: SMWB -11% (3.5 mln share offering by selling shareholder), BE -3.8% (files mixed shelf securities offering; also files offering by selling shareholders), AB -3.5% (reports August AUM), BLDP -2.7% (announces restructuring, charges; also names new CFO and COO), GEHC -1.2% (GE expected to exchange 10 mln GEHC shares to reduce indebtedness to Morgan Stanley), NBIX -1.1% (Phase 2 study for Luvadaxistat fails to meet primary endpoint), CRM -0.8% (unveils AI Agentforce), TLYS -0.3% (names co-founder and Exec Chairman as its new CEO), UAL -0.3% (says more tailwinds than headwinds to airline yields at investor conf), SANA -0.2% (CFO to resign), BA -0.2% (UAL says BA doing much better, particularly on 737s; delivery rates have stabilized and UAL has growing confidence)

FT : The $200bn man: Larry Ellison’s wealth rebounds as Oracle joins AI boom

The $200bn man: Larry Ellison’s wealth rebounds as Oracle joins AI boom
Database software maker has undergone an unlikely Wall Street renaissance

Until recently, it looked as though the cloud computing market had been locked up. Just three American companies — Amazon, Microsoft and Google — account for nearly two-thirds of the cloud infrastructure business, selling computing to customers who no longer want to run their own data centres.

As with much else in the tech industry, generative AI has caused a rethink. A new generation of cloud competitors has found an opening with the sudden jump in demand for the massive computing power to train and run the latest AI models. The question now is whether they can ride this wave of demand to reach meaningful scale — or whether this is just a short-term opening caused by shortages of AI chips, along with the stock market’s insatiable need to find more AI winners.

Take the unlikely Wall Street renaissance of database software maker Oracle as a cloud infrastructure company. Its shares have jumped 15 per cent after it reported earnings this week and are up 90 per cent since the start of last year. That has put co-founder Larry Ellison, a pioneer from an earlier tech era, within a whisker of overtaking Jeff Bezos to become the world’s second-richest person with net wealth of $196bn, according to Forbes.

For years, Oracle seemed happy to take a back seat in the IT world’s most important platform shift. It moved its business applications to the cloud, but rather than go all in, it poured its cash into buying back stock instead (and as its share count collapsed in the decade to 2021, Ellison’s personal stake in the company leapt from 22 per cent to 42 per cent).

Finally, Oracle seems to have got cloud religion. But is it really possible to join a computing revolution a decade and a half late and expect to be a serious contender? In a business where economies of scale really count, it is going up against companies with unrivalled resources and well-developed expertise in running large fleets of data centres.

Part of Oracle’s new cloud push has involved planting its own servers, running its database software, inside the data centres of other cloud companies. That makes it easier for customers to connect their data and applications across different clouds, a logical move that was capped this week by an alliance with arch rival Amazon Web Services.

But there’s no question where the really big opportunity lies. Ellison this week predicted that training the most advanced AI models would soon cost $100bn apiece, leading to a huge market that would be dominated by a handful of companies for the next decade.

He is not alone in believing that becoming a strategic supplier to these AI giants represents a once-in-a-generation opening in the cloud market. Nvidia chief executive Jensen Huang likes to talk about the “AI factories” needed to power the generative AI boom — companies like Coreweave and Lambda Labs, which have bought his company’s general processing units in bulk.

In a sign of its early success, virtually all of Oracle’s growth this quarter came from cloud infrastructure, even though this still makes up only 17 per cent of total revenues.

Yet a huge gulf still separates it from the cloud giants. Its $2.2bn in revenue from this business was dwarfed by the $26bn reported by Amazon Web Services. At the same time, its capex pales in comparison to the soaring investments at the biggest tech companies. The $2.3bn it spent on building data centres this quarter was dwarfed by the $19bn Microsoft ploughed into new facilities and equipment.

For now, shortages of Nvidia’s GPUs have created an opening, as even the biggest players look to offload part of their AI computing needs on to others with spare capacity. Some of the AI features in Microsoft’s Bing search engine now run in Oracle’s cloud, while close Microsoft partner OpenAI has also shifted part of the work of training its AI models to Oracle.

What will happen when the supply of AI chips catches up with demand is an open question. Also, some of the biggest AI companies see vertical integration — running their models on their own hardware — as an important strategic advantage.

Elon Musk recently turned away from Oracle when it came to building the next giant GPU cluster for X.AI, instead saying that an expertise in hardware was a core skill that his AI company needed to develop for itself.

Companies like Oracle still claim that coming later to the business and designing specialist data centres has given them an advantage over the older facilities of the cloud giants. If AI euphoria recedes, that claim could be put to the test.

TechCrunch : OpenAI unveils o1, a model that can fact-check itself

OpenAI unveils o1, a model that can fact-check itself

ChatGPT maker OpenAI has announced its next major product release: A generative AI model code-named Strawberry, officially called OpenAI o1.

To be more precise, o1 is actually a family of models. Two are available Thursday in ChatGPT and via OpenAI’s API: o1-preview and o1-mini, a smaller, more efficient model aimed at code generation.

You’ll have to be subscribed to ChatGPT Plus or Team to see o1 in the ChatGPT client. Enterprise and educational users will get access early next week.

Note that the o1 chatbot experience is fairly barebones at present. Unlike GPT-4o, o1’s forebear, o1 can’t browse the web or analyze files yet. The model does have image-analyzing features, but they’ve been disabled pending additional testing. And o1 is rate-limited; weekly limits are currently 30 messages for o1-preview and 50 for o1-mini.

In another downside, o1 is expensive. Very expensive. In the API, o1-preview is $15 per 1 million input tokens and $60 per 1 million output tokens. That’s 3x the cost versus GPT-4o for input and 4x the cost for output. (Tokens are bits of raw data; 1 million is equivalent to around 750,000 words.)

OpenAI says it plans to bring o1-mini access to all free users of ChatGPT but hasn’t set a release date. We’ll hold the company to it.

Chain of reasoning
OpenAI o1 avoids some of the reasoning pitfalls that normally trip up generative AI models because it can effectively fact-check itself by spending more time considering all parts of a question. What makes o1 “feel” qualitatively different from other generative AI models is its ability to “think” before responding to queries, according to OpenAI.

When given additional time to “think,” o1 can reason through a task holistically — planning ahead and performing a series of actions over an extended period of time that help the model arrive at an answer. This makes o1 well-suited for tasks that require synthesizing the results of multiple subtasks, like detecting privileged emails in an attorney’s inbox or brainstorming a product marketing strategy.

“o1 is trained with reinforcement learning,” said Noam Brown, a research scientist at OpenAI, in a series of posts on X on Thursday. This teaches the system “to ‘think’ before responding via a private chain of thought” through rewards when o1 gets answers right and penalties when it does not, he said.

Brown added that OpenAI used a new optimization algorithm and training data set containing “reasoning data” and scientific literature specifically tailored for reasoning tasks. “The longer [o1] thinks, the better it does,” he said.

TechCrunch wasn’t offered the opportunity to test o1 before its debut; we’ll get our hands on it as soon as possible. But according to a person who did have access — Pablo Arredondo, VP at Thomson Reuters — o1 is better than OpenAI’s previous models (e.g. GPT-4o) at things like analyzing legal briefs and identifying solutions to problems in LSAT logic games.

“We saw it tackling more substantive, multi-faceted, analysis,” Arredondo told TechCrunch. “Our automated testing also showed gains against a wide range of simple tasks.”

In a qualifying exam for the International Mathematics Olympiad (IMO), a high school math competition, o1 correctly solved 83% of problems while GPT-4o only solved 13%, according to OpenAI. (That’s less impressive when you consider that Google DeepMind’s recent AI achieved a silver medal in an equivalent to the actual IMO contest.) OpenAI also says that o1 reached the 89th percentile of participants — better than DeepMind’s flagship system AlphaCode 2, for what it’s worth — in the online programming challenge rounds known as Codeforces.

In general, o1 should perform better on problems in data analysis, science and coding, OpenAI says. (GitHub, which tested o1 with its AI coding assistant GitHub Copilot, reports that the model is adept at optimizing algorithms and app code.) And, at least per OpenAI’s benchmarking, o1 improves over GPT-4o in its multilingual skills, especially in languages like Arabic and Korean.

Ethan Mollick, a professor of management at Wharton, wrote his impressions of o1 after using it for a month in a post on his personal blog. On a challenging crossword puzzle, o1 did well, he said — getting all the answers correct (despite hallucinating a new clue).

OpenAI o1 is not perfect
Now, there are drawbacks.

OpenAI o1 can be slower than other models, depending on the query. Arredondo says o1 can take over 10 seconds to answer some questions; it shows its progress by displaying a label for the current subtask it’s performing.

Given the unpredictable nature of generative AI models, o1 likely has other flaws and limitations. Brown admitted that o1 trips up on games of tic-tac-toe from time to time, for example. And in a technical paper, OpenAI that it’s heard anecdotal feedback from testers that o1 tends to hallucinate (i.e. confidently make stuff up) more than GPT-4o — and less often admits when it doesn’t have the answer to a question.

“Errors and hallucinations still happen [with o1],” Mollick writes in his post. “It still isn’t flawless.”

We’ll no doubt learn more about the various issues in time, and once we have a chance to put o1 through the wringer ourselves.

Fierce competition
We’d be remiss if we didn’t point out that OpenAI is far from the only AI vendor investigating these types of reasoning methods to improve model factuality.

Google DeepMind researchers recently published a study showing that by essentially giving models more compute time and guidance to fulfill requests as they’re made, the performance of those models can be significantly improved without any additional tweaks.

Illustrating the fierceness of the competition, OpenAI said that it decided against showing o1’s raw “chains of thoughts” in ChatGPT partly due to “competitive advantage.” (Instead, the company opted to show “model-generated summaries” of the chains.)

OpenAI might be first out of the gate with o1. But assuming rivals soon follow suit with similar models, the company’s real test will be making o1 widely available — and for cheaper.

From there, we’ll see how quickly OpenAI can deliver upgraded versions of o1. The company says it aims to experiment with o1 models that reason for hours, days, or even weeks to further boost their reasoning capabilities.

The Information : OpenAI in Talks with UAE Investment Fund for $7 Billion Fundra

OpenAI in Talks with UAE Investment Fund for $7 Billion Fundraising

The Takeaway
• Investment could receive U.S. regulatory scrutiny
• Existing investors Thrive, Khosla planning special purpose vehicles to invest
• Arrangements speak to complicated nature of massive fundraise

OpenAI has told investors it may try to raise as much as $7 billion in a massive fundraising round that would value it at $150 billion. It is in talks with MGX, the $100 billion United Arab Emirates-backed investment fund, according to people familiar with the matter, as well as tech and VC investors such as Microsoft and Thrive Capital.

A spokesperson for MGX said that “as part of its regular investment mandate, MGX has been continuously engaged in discussions with partners around the world regarding investments in the technology space.” A spokesperson for OpenAI didn’t respond to requests for comment.

Michael Klein, a veteran investment banker with close ties to Middle Eastern clients, recently has been advising OpenAI on investor relationships in the region, according to a person who spoke to Klein and two people close to OpenAI.

MGX was launched this year by state-owned Mubadala Investment Co, and G42, a tech conglomerate that has a partnership with OpenAI, which is providing its AI to companies in the country. Microsoft, OpenAI’s biggest backer, is also on the board of G42.

Money also could come from sovereign wealth fund Abu Dhabi Investment Authority. Sheikh Tahnoun bin Zayed Al Nahyan, the deputy ruler of Abu Dhabi, serves as board chair for both MGX and ADIA.

Both would join several big tech companies as investors in the round. Microsoft, which has already sunk $13 billion into OpenAI, expects to participate in the round, but hasn’t decided on how much of its subsequent investment will be in cash, computing or both, according to a person familiar with the company’s plans. Nvidia and Apple also plan to invest, according to OpenAI investors.

OpenAI could face hurdles in raising money from the Middle East. The Committee on Foreign Investment in the United States has become more active and aggressive scrutinizing Middle Eastern investments in U.S. biotechnology and artificial intelligence companies, due to the connections these government-backed investors have with China and Russia, according to multiple lawyers, including a former CFIUS adviser.

But OpenAI, which is growing rapidly but burning cash also at a fast rate, likely only has so many private investors it can tap for the amount of capital it wants to raise to keep training and running advanced AI models.

Some of the money OpenAI is trying to raise will buy out employee shares, a person briefed on the fundraising said. It’s not clear the size of that employee tender. Earlier this year, Thrive led the sale of existing investor shares in a sale that valued it at $86 billion.

OpenAI investors have had to swallow an unusual capital structure. It’s a for-profit unit of a nonprofit, and investors get profit-sharing units rather than traditional equity for their investment. Altman and the organization’s board have been working on changing the structure to a for-profit business.

Khosla, Thrive SPVs

New York-based Thrive Capital, an existing investor in OpenAI, has already committed more than $1 billion to the OpenAI round, according to The Wall Street Journal.

Khosla Ventures, another early OpenAI investor, is also expected to contribute via a special-purpose vehicle, according to three people familiar with the matter. Khosla aims to raise money from their limited partners, rather than investing solely out of their venture funds, the people said.

These vehicles have become more popular in the past two years as VC firms seek to lower a particular company’s concentration in a fund, as well as give their limited partners direct exposure to a private stock.

To navigate the complicated structure, OpenAI is leaning on a coterie of advisers. Klein, the investment banker with ties to the Middle East, has a history with Altman.

Klein, who created several blank-check companies during the SPAC boom, founded a SPAC alongside Altman that last year took public Altman-backed Oklo, a nuclear-fission startup.

Klein runs his own boutique investment bank and advised Saudi Arabia on its multi-billion-dollar share sale of Aramco stock earlier this year. He couldn’t be reached for comment.