Investors Fret Over Khashoggi Killing but Still Maintain Saudi Ties

Virgin founder Richard Branson announced he was pulling out of talks on a $1 billion deal with Saudi Arabia over the killing of a Washington Post columnist. State involvement in the killing, “if proved true, would clearly change the ability of any of us in the West to do business with the Saudi government,” Mr. Branson said.

Days later in a text message, Mr. Branson counseled the Saudi crown prince, Mohammed bin Salman, to release female activists his country had imprisoned.

“If you were to pardon these women and a number of men too, it would show the world the Government is truly moving into the 21stCentury,” Mr. Branson texted the crown prince. “It won’t change what happened in Turkey but it would go a long way to start and change people’s view.”

Mr. Branson was one of the first in a parade of CEOs, fund managers and bankers who scrambled to figure out how to preserve their relationships with Prince Mohammed after the murder of the journalist Jamal Khashoggi in Saudi Arabia’s Istanbul embassy in the fall.

Mr. Branson urged Prince Mohammed to change his ways. Others adopted a dual strategy of public condemnation while trying to continue to do business as usual. Some shunned the formality of Saudi Arabia’s high-profile investment conference but pursued informal gatherings instead.

The reason: Many have tied their companies’ future to Saudi money and Crown Prince Mohammed’s wide-ranging economic overhauls.

This whole Khashoggi thing doesn’t mean anything,” said hedge-fund manager John Burbank, who has been one of the U.S.’s most prominent investors in Saudi stocks. “It means much less than the big, sweeping liberalization that’s happening in the kingdom.”

MBS, as Prince Mohammed is known, politely thanked Mr. Branson for his input. A few days later, the crown prince publicly denied involvement in the murder, calling it a heinous crime. The U.S. Central Intelligence Agency has since concluded that he likely ordered the killing.

American investors in Saudi stocks, besides Mr. Burbank, include Peter Thiel and hedge fund Bienville Capital Management, among others. Roughly 4% of the total Saudi market is held by foreigners.

One person’s life doesn’t matter unless it’s MBS’s,” Mr. Burbank says. “Khashoggi doesn’t matter.” He adds that investors who have steered away from Saudi Arabia are hypocrites, because some of them also invest in Russia and Turkey.

Mr. Burbank was among the dozens of Western executives and investors who showed up at the home of Yasir al Rumayyan—chairman of Saudi Arabia’s sovereign Public Investment Fund, which the crown prince oversees—on the eve of the investor conference in October. Over platters piled high with roast lamb, towers of sweets in golden birdcages and champagne flutes of fruit juice, they toasted their relationship beneath palm trees tinted by purple spotlights, attendees said.

SoftBank CEO Masayoshi Son backed out of the conference, but he still showed up at the lamb feast. Uber CEO Dara Khosrowshahi also pulled out of the conference, but Uber co-founder and board member Travis Kalanick was at the party, along with former congressman and current banker Eric Cantor and his boss, banker Ken Moelis, and venture capitalist Jim Breyer. Thiel Capital portfolio manager John MacMahon also appeared at the dinner, and the chief executive of Silicon Valley construction startup Katerra, Michael Marks, attended the investment conference.

Matt Barnard, the CEO of Plenty—an indoor-farming startup with $200 million in backing from a Saudi-backed SoftBank fund—flew to Saudi Arabia for the conference. But he returned home without attending, a Plenty spokeswoman says.

The cost of shunning Saudi Arabia could be high. Some business partners fear losing access to the kingdom in the future if they pull out of Saudi deals now.

Ari Emanuel, the CEO of Hollywood talent agency Endeavor, is negotiating to return a $400 million investment that the Saudi sovereign-wealth fund made in his company earlier this year, people familiar with the company’s plan say.

In the wake of Mr. Khashoggi’s disappearance, Mr. Emanuel said he was “really concerned about it.”

.. “Were there mistakes made? Absolutely there were mistakes made,” said Matt Michelsen, an associate of John Burbank and a Silicon Valley investor. “But this place is changing. I saw Starbucks opening on multiple corners. There are women walking around without abayas. It’s a fundamental shift that’s occurred.”

Saudi Arabia Pumps Up Stock Market After Bad News, Including Khashoggi Murder

The government of Crown Prince Mohammed bin Salman has spent billions to counter selloffs in recent months

Saudi Arabia’s government has been spending billions of dollars to quietly prop up its stock market and counter selloffs that have followed repeated political crises in recent months.

According to a Wall Street Journal analysis of trading data and interviews with multiple people with direct knowledge of government intervention efforts, the Saudi government has placed huge buy orders, often in the closing minutes of negative trading days, to boost the market.

The Saudi stock market is a pillar of Crown Prince Mohammed bin Salman’s plan to revamp his country’s economy. Since he ascended to a top leadership position three years ago, the de facto Saudi ruler and his deputies have faced a series of foreign-relations predicaments—most recently the October murder of columnist Jamal Khashoggi—that prompted investors to dump Saudi stocks.

The Saudi stock exchange normally discloses how much stock the government buys. The recent purchases after political crises have been concealed from public view. That is because the government, rather than buying stock directly, has routed its money through asset managers at Saudi financial institutions who run funds that don’t need to reveal their clients, those people say.

.. It is a strategy the kingdom used last year after it launched an economic blockade of Qatar, following the arrest and torture of prominent Saudis, a corruption crackdown that some inside the government called a political purge, and after Prince Mohammed detained Lebanon’s prime minister, the Journal found.

Through the upheaval, Prince Mohammed’s government has been keen to show the world that Saudi Arabia remains safe for foreign investors. “We need to highlight to the world that Saudi investment is good,” said a Saudi government official.

.. China and other developing countries have been intervening for years in their stock markets. The Saudi efforts stand apart because they’re geared to attract foreign investors to a market with little foreign ownership. Foreigners only own about 4% of stock on the Saudi market, where all of the companies are Saudi-based and many have some government ownership.

.. Antoine van Agtmael, who coined the term “emerging market” almost 40 years ago, and who now works as an adviser for publisher FP Group, said government intervention makes the Saudi stock exchange “more of a fake market, and that kind of undermines the trust of investors in the long run.”

.. Having a healthy stock market is especially important because the Saudi stock exchange, known as the Tadawul, will be included next year in global emerging-market indexes. That inclusion will result in billions of dollars of foreign capital entering the exchange, which currently has a market capitalization of around $500 billion.

.. To prop up the market, the government has bought stocks via its sovereign Public Investment Fund, or PIF, say people familiar with the matter. PIF has been Prince Mohammed’s main investment instrument at home and abroad, taking a high-profile stake in Uber Technologies Inc. and investing billions of dollars with SoftBank Group Corp.

.. When local share prices falter, one of these people says, Mr. Rumayyan tells deputies to start buying. They use the messaging program WhatsApp to contact managers at institutions including state-controlled NCB Capital Co. who manage PIF funds, this person says.

Saudi Money Flows Into Silicon Valley—and With It Qualms

The kingdom is now the largest single investor for U.S. startups, an unsettling fact for Silicon Valley

Crown Prince Mohammed bin Salman has directed at least $11 billion of Saudi money into U.S. startups since mid-2016, either directly or through SoftBank Group Corp.’s $92 billion tech-focused Vision Fund, to which the Saudis committed $45 billion

.. Some of tech’s most prominent young companies have welcomed Saudi money, including Uber Technologies Inc., office-sharing company WeWork Cos. and augmented-reality device maker Magic Leap Inc. For Uber, the situation could be particularly dicey: A prominent Saudi official sits on its board.

.. . Saudi’s Public Investment Fund has committed another $4.9 billion to Uber, Magic Leap and electric-car maker Lucid Motors Inc.

The Crown Prince and the New Saudi Economy

The Public Investment Fund is supposed to be Saudi Arabia’s sovereign wealth fund, but the prince, who heads its board, runs it like his own business. In April, it acquired 129 square miles of state land for a sports and entertainment city. In August, it announced plans for a tourist resort bigger than Belgium. And in October, Prince Mohammed unveiled Neom, his $500 billion robot city, at an international conference.

..  Far from diversifying wealth, he seeks to centralize it in his hands.

.. Prince Mohammed still hopes to raise around $100 billion from the purge. Yet that amount would cover only his budget deficit in 2015

.. the Saudi economy dropped into recession more sharply than predicted in the last quarter. The gross domestic product dipped 0.7 percentin 2017, substantially down on pre-purge predictions of growth of 0.1 percent, and worryingly below population growth of 2 percent.

.. Saudi Arabia’s ranking on the World Bank’s ease of doing business index has fallen from 26 in 2014 to 92 in 2017. Unemployment continues to increase, in part because of the influx of women into the job market.

.. Economists expect the ranks of Saudis living in poverty — around 20 percent — to swell.

.. A direct sale to Chinese state-owned oil companies is also being mentioned.

.. Investors and neighbors crave predictability, stability and the confidence that comes with a sound regulatory system. All three are what made Dubai. Properly carried out, such a system would please bankers who might welcome the chance to retrieve debts or land from princes that act like robber barons.

.. A new House of Lords would lessen the risk that wounded egos will spawn an opposition. Subject to his elders’ scrutiny, the crown prince might be more prudent about spending money, particularly on defense and security, which documents indicate was 43 percent over budget in 2016.

.. For now Prince Mohammed is offering more personal liberty and relief from the scowls of the religious police as compensation for the introduction of taxes.

But as Abdullah, the previous king, recognized, more taxation — whether direct or indirect — will stoke demands for broader representation.

Uber’s C.E.O. Plays With Fire

So Apple would not find out that Uber had secretly been tracking iPhones even after its app had been deleted from the devices, violating Apple’s privacy guidelines.

.. In a quest to build Uber into the world’s dominant ride-hailing entity, Mr. Kalanick has openly disregarded many rules and norms, backing down only when caught or cornered. He has flouted transportation and safety regulations, bucked against entrenched competitors and capitalized on legal loopholes and gray areas to gain a business advantage.

.. Mr. Kalanick, 40, is driven to the point that he must win at whatever he puts his mind to and at whatever cost — a trait that has now plunged Uber into its most sustained set of crises since its founding in 2009.

“Travis’s biggest strength is that he will run through a wall to accomplish his goals,” said Mark Cuban, the Dallas Mavericks owner and billionaire investor who has mentored Mr. Kalanick. “Travis’s biggest weakness is that he will run through a wall to accomplish his goals. That’s the best way to describe him.”

.. Mr. Kalanick mixes with celebrities like Jay Z and businessmen including President Trump’s chief economic adviser, Gary D. Cohn. But it has alienated some Uber executives, employees and advisers. Mr. Kalanick, with salt-and-pepper hair, a fast-paced walk and an iPhone practically embedded in his hand, is described by friends as more at ease with data and numbers (some consider him a math savant) than with people.

.. the company has been reeling from allegations of a machismo-fueled workplace where managers routinely overstepped verbally, physically and sometimes sexually with employees.

.. Uber is financed by a who’s who of investors including Goldman Sachs and Saudi Arabia’s Public Investment Fund,

.. Mr. Kalanick controls the majority of the company’s voting shares with a small handful of other close friends, and has stacked Uber’s board of directors with many who are invested in his success.

.. He is interviewing candidates for a chief operating officer, even as some employees question whether a new addition will make any difference

.. “Scour was about efficiency. Swoosh was about efficiency. It’s just the way his brain is wired. It’s like the way Uber works right now: What’s the fastest, cheapest and most efficient way to get from point A to point B? That consumes him, and all parts of his life.”

.. When the company struggled, Mr. Kalanick and a partner took the tax dollars from employee paychecks — which are supposed to be withheld and sent to the Internal Revenue Service — and reinvested the money into the start-up, even as friends and advisers warned him the action was potentially illegal.

.. he once held the world’s second-highest score for the Nintendo Wii Tennis video game.

.. “The Travis Kalanick I came to know 17 years ago was relentless in pursuit of his goals at the expense of those who supported him along the way, deluded by his own embellished personal narrative, and a serial prevaricator,”

.. he told Mr. Kalanick, “Sometimes in business you have to battle the establishment, and it can get brutal and ugly.”

.. The idea for Uber came in 2009 from Garrett Camp, a friend of Mr. Kalanick’s, who became fixated on hailing a private luxury car with a smartphone app after being unable to catch cabs in San Francisco.

.. His pacing is so legendary, his father once said, that he wore a hole in the carpeting.

.. In October 2010, the company shortened its name to Uber after receiving a cease-and-desist letter from San Francisco officials for marketing itself as a taxi company without the proper licenses and permits.

.. In some places, Uber employees were also told to create computer programs known as scripts that would automatically vote for the ride-hailing service in city-administered surveys.

.. Hollywood stars were eager to buy into Uber, which they had started using to get around. Actors like Edward Norton, Olivia Munn and Sophia Bush took small stakes in the company.

.. Mr. Kalanick and a top lieutenant, Emil Michael, sometimes hung out with Leonardo DiCaprio, who is also an investor, and Jay Z, whose wife, Beyoncé, performed for Uber employees at a poolside party in Las Vegas in 2015.

.. Mr. Kalanick began mixing with elite business executives. He developed a close relationship with Mr. Cohn, then a top-ranking executive at Goldman Sachs. At one point, the two men spoke on a near daily basis.

.. Mr. Kalanick’s main mantra was “growth above all else.”

.. Uber’s top performers were often promoted and protected. When one general manager, a title for a city-level chief, threw a coffee mug at a subordinate in a fit of rage, the incident was reported to human resources — but there was no follow up.

.. Friends and employees told Mr. Kalanick that he should at least pretend to care about how it looked to take such a hostile stance with Uber’s users. Several described him as “emotionally unintelligent.”

.. Slice collected its customers’ emailed Lyft receipts from their inboxes and sold the anonymized data to Uber. Uber used the data as a proxy for the health of Lyft’s business.

.. Uber’s “driver satisfaction rating,” an internal metric, has dropped since February 2016, and roughly a quarter of its drivers turn over on average every three months.

.. The tool, developed to aid driver safety and to trick fraudsters, essentially showed a fake version of Uber’s app to some people to disguise the locations of cars and drivers. It soon became a way for Uber drivers to evade capture by law enforcement in places where the service was deemed illegal.

.. Mr. Kalanick told his engineers to “geofence” Apple’s headquarters in Cupertino, Calif., a way to digitally identify people reviewing Uber’s software in a specific location. Uber would then obfuscate its code from people within that geofenced area, essentially drawing a digital lasso around those it wanted to keep in the dark. Apple employees at its headquarters were unable to see Uber’s fingerprinting.