Saudi/Blackstone/SoftBank: active threat Premium
A desire for a bigger say to match huge cheques would produce problems
In private equity, the rights of limited partners are usually defined by the adjective rather than the noun. Lawmakers complain that public investors such as Calpers are too quiescent, handing over vast sums and paying big fees for little oversight.
When the LP is the sovereign-wealth fund of Saudi Arabia, everything is bigger -- including the problems of a typically passive or more active role. The Saudi Public Investment Fund (PIF) announced on Saturday that it would invest $20bn in a new Blackstone infrastructure fund and closed a deal to invest $45bn in SoftBank’s new technology fund.
The Saudis have no desire to be the dumb money, in either sense. As people involved in both sets of negotiations attest, there was wrangling over the degree of influence on investing that the Saudis would have in the SoftBank fund (as the Wall Street Journal also reported). There also appears to be different ideas on this crucial question for the as-yet unsigned Blackstone deal.
Demanding more say in the infrastructure fund would be understandable for what is the single biggest commitment from an LP in Blackstone’s history. However, it would also be fraught with danger. A New York private equity firm encounters plenty of political strife investing in US schools, hospitals, bridges and roads. The Saudis becoming any more than a silent partner would raise the stakes much further, evoking the Dubai Ports World saga.
Technology is far less politically problematic. The PIF has gone as far as investing directly in Uber. Even under the Obama administration, whose relationship with Saudi Arabia was bad; even though the Saudis got a board seat in exchange for their $3.5bn investment; and even though the money came from a repressive regime that does not permit women to drive, there was little in the way of backlash.
Yet already there has been disagreement over the degree of decision-making in the SoftBank fund. The two sides have ultimately agreed that SoftBank will pick tech investments, but the PIF’s representatives can observe decisions and veto large commitments.
That does not sound like a bright line. As part of its attempt to move from an oil-dominated economy, Saudi Arabia sees the tech sector as strategic. It is already going to be hard to deploy so much money in a five-year fund when asset prices are so elevated. The needs of an active partner, who wants more than just a financial return, are going to make life complicated.