Читать книгу The Hunt for Unicorns - Winston Ma - Страница 41

One notable change in equity markets around the world can be laid at the feet of the patient, cash-rich sovereign investors: the dramatic decline in IPOs. The Financial Times headlined 2019's 10% drop from 2018 in capital raised in public listings, with the fewest flotations for three years. The massive investments by sovereign investors, eager to gain exposure to the digital economy, have enabled these tech stars to remain private far longer than would have been possible in the past (see the detailed discussion in the next chapter).

One result has been a dramatic drop off in IPOs; another, hefty pre-IPO valuations that are challenging for the tech giants to sustain in public markets. In the absence of patient, massive equity inflows from the sovereign investors, things may have played out quite differently. Others speculate that it was the arrival of SIFs into the market for late stage growth companies that enabled them to put off SEC scrutiny and meddlesome public shareholders, thereby shrinking public markets. Others see the mirror image, with the SIFs not as enablers but as driven to unicorns by the shrinking public markets.

Ironically, the largest IPO of 2019 was Saudi Aramco, which topped $2 trillion in market cap briefly after its listing. Nearly $30 billion in proceeds will largely fund PIF, which has as a goal the digital transformation of the economy and has heavily funded (via Vision Fund and directly) late stage tech stars such as Uber. In 2020, the oil price war with Russia and the economic impact of the coronavirus on the Saudi economy may cause PIF to redirect more proceeds to stimulus and funding deficits. But Vision 2030, the transformative digital future, remains in its sights.

The rest of this book will cover the tech investments of SIFs in detail. The most prominent example of this trend is Saudi Arabia and its Public Investment Fund (PIF), whose exceptionally large capital contribution to the Vision Fund has consequently had a profound impact on the global tech startups and capital markets. PIF is the beneficiary of the country's oil wealth and, most notably, the beneficiary of proceeds from the flotation of Aramco, briefly the most valuable company on Earth (see Box: The IPO to end all IPOs).

Saudi Arabia has successfully leveraged its resource-based capital in PIF to raise its profile as a major player in venture capital for tech companies. PIF committed $45 billion to the first Vision Fund's total raise of $100 billion (see Figure 1.5), at the time an unheard of fund size for venture capital – nearly double the amount raised by all other VC funds in a good year. Reportedly, PIF was contemplating a similar commitment to the second Vision Fund. The Fund also committed to a $500 million investment in Neom, the future oriented (flying taxis, robot dinosaurs) city Saudi Arabia is planning for its Red Sea coast.

Using its sovereign fund, Saudi Arabia has succeeded in drawing tech thought leaders to its “Davos in the Desert,” despite talk that its domestic policies were anathema to the Silicon Valley ethos. The link to Neom city is of note as well. It is possible that the reciprocal investment promised by Softbank, Vision Fund's sponsor, in Neom will elevate its chances of attracting additional tech sector players to the country. Such a result would mean that PIF had also indirectly propelled the digital transformation of the Saudi economy by securing an anchor investor in its show piece of the digital future (see the more detailed discussion in Chapter 5).

Figure 1.5 SIFs Lead $100 billion Vision Fund

Data Source: FT Research 2017.

Another case in point is the European Union, which is a latecomer to the world of sovereign investment funds and digital economy investments. With the rest of the world aggressively investing into tech ventures domestically and internationally, Europe has actually looked more like a net seller. Chinese buyers have acquired large robotics firms in Germany and Italy; in the UK, SoftBank bought the chip-maker ARM and one of its affiliates is set to bid on the UK's upcoming 5G auction. The UK's DeepMind, the AI pioneer that built the Alphago algorithm to beat the best human player in Go Chess, was sold to US Internet giant Google's parent company, Alphabet.

For Europeans, Apple of the US (and Samsung, from South Korea) are the most popular phones. Similarly, US companies dominate digital platforms in Europe: Facebook operates the most widely used social networks, Google rules online search and advertising, and Amazon reigns over e-commerce. Cloud infrastructure from Amazon and Microsoft is indispensable to Europe's companies. Meanwhile, China's Huawei produces the physical equipment on which Europe's digital economy runs. Driving home the extent of foreign digital dominance, EU officials had to call Los Gatos, California to ask US tech giant Netflix to lower its video streaming quality to prevent a European system crash during the coronavirus-induced surge in Internet traffic.

Things are set to change in 2020 and beyond. The European Union in February 2020 unveiled a plan to restore what officials called “technological sovereignty,” with more public spending for the European tech sector. With the global economy becoming ever more reliant upon digital technology, European leaders are concerned that the European economy is overly dependent on technology developed and controlled elsewhere. As Ursula von der Leyen, the president of the European Commission, the executive branch of the EU, said at a news conference: “We want to find European solutions in the digital age.” Hence new sovereign investment funds in Europe.

According to media reports in August 2019, EU staff have drafted a plan to launch a €100 billion ($110 billion) sovereign wealth fund, to be called the “European Future Fund.” The main goal of this proposed fund will be to invest into future “European tech champions,” which could potentially compete in the same league as China's BAT (Baidu, Alibaba, and Tencent) or the US GAFA (Google, Apple, Facebook, and Amazon). Due to the complex EU politics, it is not clear that the fund will ever be realized; but the determination to compete with American and Chinese dominance, using a sovereign fund, in the future digital economy is clear.

The third example is China and its endeavor to reduce its semiconductor dependency on US technology. According to the Wall Street Journal, even after the creation in 2014 of its initial fund specifically targeted at fostering its domestic semiconductor industry, in 2018 alone China imported $312.1 billion in semiconductors well more than the year's $240.3 billion in oil imports. China has stepped up the effort to bolster its own chip industry through various means, including the acquisition of foreign technology companies, but the effort encountered push back by the US Committee on Foreign Investment in the United States (CFIUS), the agency that screens foreign direct investment for national security risks.

With an eye to further constraining foreign incursions in the sensitive tech sector, in 2018 (effective from early 2020) the Trump administration developed new CFIUS rules to scrutinize Chinese and other foreign investments more carefully, especially in high-tech fields. The new rule emphasizes national security review of transactions involving “TID” technologies – critical technology, critical infrastructure, and sensitive personal data (see Figure 1.6). While the rules would apply to any foreign investment, the effort is likely aimed at preventing China from gaining access to sensitive American technology and other valuable assets – after years of Chinese sovereign capital's activities in the Silicon Valley.

Figure 1.6 The TID Focus of CFIUS

Still, China is not deterred from its determination to become more independent from US technology and keep pursuing global technology leadership. In October 2019, China set up a new national semiconductor fund (its second in less than five years) with 204 billion yuan ($28.9 billion) – its predecessor was capitalized with $20 billion in 2014. The fund's registered capital comes mainly from state organizations, according to company registration information, which include China's Ministry of Finance (22.5 billion yuan) and the policy bank China Development Bank (22 billion yuan), as well as state-owned enterprises such as China Tobacco Co. The new fund has an ambitious goal to cultivate China's complete semiconductor supply chain, from chip design to manufacturing, from processors to storage chips.

What's next for the US? Its own sovereign funds to develop 5G network technology (see Figure 1.7), a field in which Chinese company Huawei is the global leader. Whereas Europe's Ericsson and Nokia companies are close competitors to Huawei, the US has no 5G champions. In January 2020, a bipartisan group of US senators introduced legislation that the Federal Communications Commission (FCC) would create a research and development fund for Western alternatives to Huawei. Further, the newly created US International Development Finance Corporation (DFC), with $60 billion in funding, would also invest in the development of mobile networks. More recently, one US government official suggested that the US may consider a fund to take controlling stakes in the two European telecoms firms.

Figure 1.7 New US SIFs for 5G

Meanwhile, the investment power of US federal, state, and local pension funds has not gone unnoticed in the corridors of the US Congress. Like their sovereign wealth fund cousins, cross-border tech investments are for them both attractive and politically charged. No longer passive allocators, they, too, live with the heightened scrutiny their profile and investment choices now attract.

In November 2019, a bill was introduced, notably with joint Republican and Democratic sponsors, that would limit the ability of the $600 billion federal Thrift Savings Plan to pivot its index investing to include Chinese equities, a reflection of the ongoing US–China battle over determining the future of technology. And there were reports of the White House contemplating a general ban on US pension funds (federal, state, and local) investing in technology plays in China. As US–China tensions continue, there is mounting talk of restricting the ability of US domestic pension funds to invest in Chinese tech companies. In fact, in August, 2020, the US State Department asked university endowments to divest Chinese equities, warning of more burdensome measures to come.

In summary, sovereign investors are throwing their considerable heft and influence into keenly investing in digital technology in domestic and foreign markets. Along with rising SIF activities, there is a sharp rise in global tensions, because the power of innovation is now viewed by all nations not only as an economic growth engine, but also as the key to future geopolitical dominance.

As a result, more countries are building up regulatory barriers around tech know-how and data resources as if they are “national treasures.” The following chapters will follow the SIFs into their global unicorn hunting, and the hope that through the economic independence created by the SIFs of different nations, the world may find a new equilibrium and collectively develop a shared digital future.

As you step out from the bustling, air-conditioned comfort of the ADIA tower into the Gulf heat, it strikes you that you are far from the financial centers of traditional finance or the tech hubs of the digital economy. But you will see, as you continue your journey through this book, that you have come to the doorstep of a force that will help determine their position in the post-pandemic world order. Next stop: the global village.