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.”

From Wall Street to K Street, Companies Gauge the Risks of Doing Business With Saudi Arabia

One of the roughly 10 lobbying firms that represent the Saudi government, the Harbour Group, has dropped it as a client, and others are considering following suit, according to people familiar with discussions, as Saudi Arabia struggles with a backlash over allegations that it murdered the journalist, Jamal Khashoggi.

The lobbying firms are privately discussing how to proceed, these people said. But some have already decided that the prospect of continued paychecks from Saudi Arabia — once a prized and profitable client — is not worth the risk to their reputations.

But for financial and technology companies, several of which have multibillion-dollar ties to Saudi Arabia, the calculus is more complicated. Few executives have backed out of the conference, which is called the Future Investment Initiative but is known colloquially as Davos in the Desert.

Uber’s chief executive, Dara Khosrowshahi, was one of the few to announce that they would back out.

.. The Public Investment Fund, a large Saudi sovereign wealth fund, invested $3.5 billion for a 5.6 percent share in Uber in June 2016.

The fund’s managing director, Yasir Al-Rumayyan, took a seat on Uber’s board. Prince Mohammed is the chairman of the Public Investment Fund.

.. Blackstone’s chief executive, Stephen A. Schwarzman, remains an advisory board member and is expected to speak at the conference, which is held at the Ritz-Carlton hotel in Riyadh, where Prince Mohammed locked up hundreds of wealthy Saudis last year in what he called an anti-corruption campaign but critics said was an effort to crush dissent.

.. Jamie Dimon, the chief executive of JPMorgan Chase, is also still planning to attend

.. Peter Thiel, the technology venture capitalist who was once an ally of President Trump and is known for his independent streak, is still a member of the event’s advisory board but had never planned to attend the gathering, according to a person close to Mr. Thiel.

.. Richard Branson, the billionaire British entrepreneur, said that he had suspended his directorship at two tourism projects near the Red Sea and that his space ventures would halt their discussions over proposed investments from the Public Investment Fund.

.. Saudi Arabia has been a coveted client, thanks to its reputation for paying above-market rates and its status as one of the United States’ most reliable allies in an unstable region, which seemed cemented by the ties between Prince Mohammed and the Trump administration.
.. The debates about dropping the Saudi account also reflect the skittishness of the lobbying industry at a time when it has faced mounting scrutiny from federal investigators, including the special counsel Robert S. Mueller III, about how foreign interests try to shape American politics and policy.
.. The highest-paid firms representing the Saudis in Washington are the international public affairs consultancy
  • Qorvis MSLGroup, which is being paid $279,500 a month, and the
  • Glover Park Group, which was started by former Clinton administration officials and is being paid $150,000 a month
.. Another two firms are being paid $125,000 a month —
  • Hogan Lovells, which has Norm Coleman, a former senator of Minnesota, as its point person for Saudi work, and
  • Brownstein Hyatt Farber Schreck, which has a bipartisan team composed of Marc S. Lampkin, a former aide to the former House speaker John A. Boehner of Ohio, and Alfred E. Mottur, a top fund-raiser for Hillary Clinton’s presidential campaign.

.. Not all of these firms will drop the Saudis. Some are leaning toward maintaining their contracts, in part because they predict that if they were to abandon the country en masse, it could lead to reduced cooperation from the Saudi government.