TheChek News Flow

• OpenAI CEO Sam Altman owns multimillion-dollar properties in San Francisco, Napa, and Hawaii.
• Altman, fired then reinstated as OpenAI's CEO this month, has tried to keep a relatively low profile.
• When Business Insider set out to catalog his assets, we found a previously unknown giant estate.

Bally — can the shoemaker finally make a footprint in fashion?

After a deal to sell the leather goods brand fell apart, Bally’s Simone Bellotti and Nicolas Girotto are forging a fresh — and quintessentially Swiss — identity for the label

- Trian Fund Management, L.P. (together with its affiliates, “Trian” or “we”) beneficially owns approximately $3 billion of stock in The Walt Disney Company (NYSE: DIS) (“Disney” or the “Company”). This morning, following conversations with Disney’s CEO, Disney extended an offer to Trian to meet with the Board but informed Trian that the Board is turning down Trian’s recent request for Board representation, including Nelson Peltz. Trian said the following regarding the discussions:

- “Since we gave Disney the opportunity to prove it could ‘right the ship’ last February, up to our re-engagement weeks ago, shareholders lost ~$70 billion of value. Disney's share price has underperformed proxy peers and the broader market over every relevant period during the last decade and over the tenure of each incumbent director. Investor confidence is low, key strategic questions loom, and even Disney's CEO is acknowledging that the Company's challenges are greater than previously believed. While James Gorman and Sir Jeremy Darroch represent an improvement from the status quo, the addition of these directors will not, in our view, restore investor confidence or address the root cause behind the significant value destruction and missteps that this Board has overseen. Trian intends to take our case for change directly to shareholders.”

UN climate summit host seeks to bolster credentials via initiative with BlackRock, TPG and Brookfield

The United Arab Emirates is preparing to launch a $30bn climate-related investment fund with BlackRock, TPG and Brookfield, according to people familiar with the matter.

The launch comes as the UAE attempts to bolster its credentials as host of COP28 on the first days of the UN summit.

Lunate Capital, a new Abu Dhabi-based asset manager set up with $50bn in assets, will oversee the fund with at least $5bn earmarked for investment in Global South countries, three people involved in discussions said.

The UAE is drawing on vast resources amassed as one of the world’s biggest oil and gas producers. The nation sits on assets worth $2.5tn across its sovereign wealth fund, pension funds and central bank, according to data provider Global SWF. 

COP28 president Sultan al-Jaber has repeatedly said climate finance would be a key focus for the summit, which kicked off on Thursday in Dubai. Tens of thousands of delegates and up to 180 heads of state or government are expected to attend the event in Expo City over the next two weeks. 

The Financial Times reported this week that the UAE was putting together a multibillion-dollar investment pot. The country has been linked to almost $200bn in investments this year, largely in green energy, according to FT analysis. 

The UAE has come under scrutiny since being chosen as the COP28 host a year ago over questions on whether one of the world’s biggest oil and gas producers should oversee global climate negotiations. 

One leading figure in climate finance called the investment fund a “serious amount” aimed at positioning the UAE as a global centre for climate finance.

Countries, especially in the developing world, are struggling to find the cash to shift their energy systems and economies from fossil fuels to green sources of power. There is also a shortfall in cash to adapt the world’s economies for hotter temperatures. 

UN research in 2021 found that $125tn of climate investment would be needed by 2050 if the world was to slash its emissions and meet its Paris agreement goals. The International Energy Agency has said $4.5tn will be needed each year for clean energy alone by the early 2030s, up from $1.8tn now.

In recent years there has been a big focus on reforming the IMF, World Bank and other multilateral development banks to divert more money to climate change, but there are also growing calls for the private sector to work with public finance to invest in green projects.

Lunate was launched earlier this year under the patronage of UAE national security adviser Sheikh Tahnoon bin Zayed al-Nahyan, a brother of the Gulf state’s ruler Sheikh Mohammed bin Zayed al-Nahyan. Lunate is owned by Chimera Investment and its senior management.

In September, Lunate said Khalifa Al Suwaidi, head of Abu Dhabi Growth Fund, would be one of three managing partners, along with Murtaza Hussain, chief investment officer at Abu Dhabi wealth fund ADQ, and private investment company Chimera chief executive Seif Fikry.

Brookfield, BlackRock and TPG declined to comment. COP28 representatives also declined to comment.

Several months ago, executives at Alibaba tried to persuade some big investors to take a stake in its cloud unit—which Alibaba was then planning to spin off as a separate company—at a $40 billion valuation. Alibaba’s idea was that the outside investments could signal to the stock market the appeal of the cloud unit ahead of its public debut.

The plan flopped. Investors balked at the valuation Alibaba sought. They were conscious that the cloud business—though the biggest of its kind in China—was barely growing and was also losing money. One international investment firm, for example, was only willing to offer a valuation of less than $25 billion for the unit, according to a person with knowledge of the discussions. The episode underlined for Alibaba executives the fact that the spun-off cloud unit would not be well received by the market, contributing to the company’s decision announced last week to cancel the move.

THE TAKEAWAY

• Investors balked at $40 billion cloud valuation sought by Alibaba

• Many Chinese customers don’t want to pay for public cloud services

• Alibaba’s hopes of emulating Amazon’s diversification were dashed

The plan’s failure also demonstrated that Alibaba’s hope of offsetting slowing growth in commerce with diversification in cloud services has failed. Alibaba had hoped to emulate Amazon, which over the past 20 years has built its cloud unit, Amazon Web Services, into its biggest source of profits. Alibaba, though, is struggling with the reality that businesses in China don’t want to pay much for public cloud services and other software.

Even Alibaba’s own commerce operations pushed back at what the cloud unit wanted to charge for its services after the company spun off the cloud unit, said people familiar with the situation. Alibaba Cloud and the e-commerce business disagreed over the terms on which they would do business after a spinoff, the people said. It has not been reported previously that the failed fundraising attempt and the internal wrangling contributed to the scrapping of Alibaba Cloud’s spinoff.

Alibaba blamed the decision on U.S. export restrictions placed on chips, which will hurt Chinese cloud providers’ ability to offer artificial intelligence–powered services using Nvidia’s specialized AI chips. Alibaba didn’t comment on questions sent by The Information.

While most internet companies in China, and some big corporations such as automakers, have embraced cloud computing to run their own operations, many other domestic enterprises, especially in traditional industries such as manufacturing supply chains, coal, energy and chemicals, have shown little enthusiasm for cloud adoption, analysts say. Many of those companies use their own servers and storage located on their own premises, and it is difficult to convince them that the benefits of cloud computing outweigh the costs of migrating from the current setup.

Alibaba remains the biggest cloud computing service provider in China’s domestic market. In the third quarter, Alibaba’s market share stood at 39%, followed by Huawei’s 19% and Tencent’s 15%, according to research firm Canalys. But the growth of China’s cloud computing market as a whole has slowed sharply, lagging the global market, according to Canalys.

Spooked Investors

The unexpected cancellation of Alibaba Cloud’s spinoff, along with the company’s decision to delay the initial public offering of its grocery chain, Freshippo, spooked Alibaba investors. After falling 10% on the day the spinoff was canceled, Alibaba’s market capitalization of about $200 billion is down more than 75% from an all-time high three years ago. These events threw into question the future of Alibaba’s largest restructuring in its 24-year history, announced earlier this year, which would have split the Chinese internet giant into six parts and rejuvenated its growth.

Alibaba’s top-line growth has flatlined over the past three years. In the last fiscal year through March, the company’s revenue growth slowed to 2%, from 19% in the previous year and 41% the year before that. Revenue from the China commerce business, which accounts for nearly 70% of Alibaba’s total revenue, declined 1%, compared to an 18% increase in the previous year. The company’s e-commerce business has been grappling with intense competition from growing rivals such as Pinduoduo and ByteDance, which has turned its Douyin video app into a major online shopping platform for Chinese consumers.

The expansion of cloud services, once a major driver of the company’s growth, has slowed down dramatically in the past few years. In the last fiscal year through March, the unit’s annual revenue grew 4% to 77.2 billion yuan ($10.9 billion), down from 23% growth in the previous year and 50% the year before that. Meanwhile, the cloud unit lost 5.15 billion yuan ($726 million).

The unit’s pace of growth remains slow. In the September quarter of this year, its revenue rose 2% to 27.6 billion yuan ($3.89 billion). Alibaba said it intentionally reduced the unit’s sales from low-margin contracts in the quarter as part of its efforts to focus on profitability. Alibaba executives have said the proliferation of AI software in China will create a major opportunity for the cloud unit. At the company’s annual tech conference in Hangzhou last month, Joe Tsai, Alibaba co-founder and chair, said about half of China’s conversational AI software, known as large language models, is using Alibaba Cloud.

The flattening growth happened at a tumultuous time for Alibaba’s cloud unit, which hasn’t had a permanent leader since the departure of Daniel Zhang in September. Zhang, then CEO of both Alibaba and the cloud unit, stepped down from both positions. Zhang, who became Alibaba’s CEO in 2015, was facing growing doubts about his leadership from some of Alibaba’s managers as well as investors, The Information reported last year. Since then, Eddie Wu, who replaced Zhang as Alibaba’s CEO, has been serving as interim CEO of the cloud unit. Zhang has moved on to establishing a technology investment fund, which will receive a $1 billion commitment from Alibaba.

Washington’s efforts to limit U.S. semiconductor exports to China, especially the Nvidia chips powering the development of AI, create an additional challenge for China’s cloud service providers, which already are grappling with sluggish growth. In China, all major domestic cloud providers, including Alibaba, Huawei, Tencent and Baidu, are developing their own LLMs, while also helping their cloud customers create new AI applications using those models.

The U.S. chip export control seems to have hit Alibaba harder than its Chinese peers. Tencent said this month that its chip stockpile is large enough for the company to continue developing its LLM “for at least a couple more generations.” Baidu said it has a “substantial reserve” of AI chips that will enable it to keep improving its chatbot for the next year or two. Alibaba didn’t make a similar declaration.

Messaging protocol startup Wormhole raised $225 million at a $2.5 billion valuation — the biggest round this year in the Web3 space.

No investor led the round, which included the likes of Coinbase Ventures, Jump Trading, Multicoin Capital and Arrington XRP Capital. Their stakes will consist of token warrants for a yet-to-be-unveiled cryptocurrency, per Fortune.

The team behind Wormhole — whose platform allows developers to communicate across different blockchains — also announced the launch of Wormhole Labs, an independent company that “specializes in building products, tools, and reference implementations” to help grow cross-chain development.

“Nearly three years ago, Wormhole was launched with the vision of a world resembling the one we see today,” said Saeed Badreg, co-founder and CEO of Wormhole Labs. “We reaffirmed our commitment to this vision by launching Wormhole Labs, dedicated to advancing the technology that makes efficient blockchain-to-blockchain communication possible.”

A brief history

Earlier this month, Bloomberg reported Jump Trading was parting ways with Wormhole, which had been part of its digital-asset unit Jump Crypto.

Jump Trading invested about $320 million into the crypto project almost two years ago following a massive hack, per the report, but has retrenched away from crypto more recently.

The round is exceedingly large when considering how slow funding has been this year in the Web3 sector. Many investors have backed away from the space as the venture market continues to slow and a series of scandals and regulations have affected the crypto industry.

Last year, nearly $26 billion was invested in VC-backed startups in the Web3 ecosystem. However, this year that number has dropped precipitously, as less than $6.5 billion have been raised globally by startups in the space, per Crunchbase data.

Has US economic stagnation destroyed the myth of an ever better life for its citizens? David Leonhardt argues that it has

The American dream, a term first used by a Depression-era historian named James Truslow Adams, is all about upward mobility. Any US citizen, if they work hard, should be able to not only succeed, but rise above the station of their parents.

In The Epic of America, published in 1931, Adams acknowledged that the ongoing economic crisis threatened a dream that, for most people through the country’s history, seemed attainable. But he also ended on a note of optimism — quoting a Russian immigrant called Mary Antin, who credited the country’s public library system with elevating her from being a child who knew no English to a writer who published her first book as a teenager. As Antin herself put it, “mine is the shining future”.

But things have changed in America, as New York Times writer David Leonhardt lays out in his important new book. For the last half century, US incomes have stagnated and wealth inequality grown. A typical family in 2019 had a net worth slightly lower than the typical family in 2001. “There has not been such a long period of wealth stagnation since the Great Depression,” Leonhart writes. What’s more, life expectancy is down — a rare and disturbing anomaly for a rich nation — as is social mobility.

He calls this the Great American Stagnation, and for many it has turned the American dream into a myth that is impossible to imagine ever coming true. The Harvard academic Raj Chetty, whom Leonhardt helped popularise, found that while 92 per cent of children born in 1940 had higher household incomes than their parents, babies born in 1980 had only a 50/50 chance of doing better than the previous generation. This decline has come with massive economic, political and social costs, not just for the US, but for the world — everything from less willingness to engage with global crises such as climate change, to “an alarming anti-democratic movement” in the US, to a rise in racism and xenophobia.

There is no longer a mass movement focused on improving economic outcomes for most Americans

Ours Was the Shining Future, Leonhardt’s first book, is an attempt to explain what happened. His take, which I believe is correct, is that democratic capitalism (defined as “a system in which the government recognises its crucial role in guiding the economy”) has since the 1970s given way to a laissez-faire free-for-all in which corporations and short-termism rule. In this world, he writes, “there is no longer a mass movement focused on improving economic outcomes for most Americans. The country’s largest activist groups, on both the left and the right, are focused on other subjects.”

How did we get here? In Leonhardt’s analysis, changes to three things — political power, culture and investment — mean that average, working Americans have been left behind. Since the late 1960s, the “old labor” of the New Deal has been hijacked by a new and more entitled “Brahmin left”, increasingly made up of college-educated elites that talk down to workers rather than with them. In a country that fundamentally skews more socially conservative, the Democratic party has also become too radically progressive on social issues such as abortion, immigration and LGBTQ rights.

Because of this, they have lost the electoral votes needed to push through badly needed economic policies such as long-term public investment, as well as more progressive taxation, plus healthcare and educational reform, that would temper rising inequality. Add in a “greed is good” culture of self-interest and global market forces pushing only what’s good for the quarter, and you get a country in decline.

Leonhardt is at his best when he is doing the sort of data-driven analysis of economic and political trends that you might find on a newspaper opinion page. Storytelling is always harder, and authors of ideas books like this one often struggle to find the single personality-driven narrative that can weave together big trends in a way that keeps the reader moving forward. That’s what the truly great non-fiction books manage to do. I’m thinking of something such as David Halberstam’s The Best and the Brightest, which followed defence secretary Robert McNamara and his “whiz kid” group of policy experts to explain how America lost itself in Vietnam. Ours Was the Shining Future is not that book.

This is not to say that Leonhart fails. Rather than focusing on a single narrative, he tries to isolate the key events that drove the rise and fall of the American dream over 100 years in 10 chapters, many of which could have themselves been standalone book topics. He covers everything from the rise and fall of the industrial labour movement, to the history of progressivism, to the intersection of crime and political turmoil, and of course, the Reagan/Thatcher revolution and all it wrought.

The history of redlining and the institutionalisation of economic racism in the US is fascinating, as is the rise of students and women as bourgeois political forces on the left — African American women, for example, never struggled with the “feminine mystique”, as the writer Betty Friedan dubbed the malaise experienced by some middle-class housewives in the 1960s. They always had to deal with having both kids and jobs.

Much of Leonhardt’s recounting of the Reagan-Thatcher revolution and the rise of big business is predicable. That said, I was surprised and happy to learn that then senator Joe Biden was one of those who in the 1980s questioned the ascent of federal judge Robert Bork, whose rollback of traditional American monopoly policies led to a grotesque concentration of corporate power only now being addressed by president Biden’s antitrust efforts.

What’s fascinating — and far less known — is the way in which Old Labor hastened its own decline. The powerful Teamsters Union, for example, first supported farm workers’ leader Cesar Chavez and his efforts to build a more inclusive labour movement in the 1960s, before deciding to seize power for themselves in a way that only hastened the decline of the industrial labour movement as a whole. The continued fragmentation of the American labour movement has made it harder for unions to increase membership today, even as more and more people claim to support them.

It’s also interesting to see how much the tragic murders of pivotal figures such as Martin Luther King and Robert F Kennedy, both of whom were able to speak across class and colour lines, made it significantly more difficult to create a liberal coalition that would support all working people. Both King and Kennedy had worked to build a broader based coalition of voters who could counter southern racism, trickle-down economics, and a neoliberal fear (on both sides of the political aisle) of any kind of government intervention to guide the invisible hand to a more just outcome.

Their deaths, and the subsequent fragmentation of the New Left into more and more finely divided interest groups, show that the talent of individual leaders can matter as much as demographics when building political power.

Biden, who keeps a bust of Caesar Chavez in his office and has no fear of industrial policy or wealth redistribution, has tried to rebuild the power of working people. But while the US economy is now doing better than it has in a quarter century by many metrics, the polls don’t yet reflect that reality.

Ours Was the Shining Future ends before Bidenomics begins, although a concluding chapter supports many of the ideas that the White House has since advocated. But the US is still a democracy, and next year, there will be a presidential election. Whether America’s future will again shine may hinge on the outcome.

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