Conflicts Of Interest

April 18, 2023

Everyone knows if you want to get an answer on most things… you follow the money.

It’s also a known secret that money and influence create never-ending conflicts of interest… especially in politics.

For example, there’s a site Tradytics which tracks the trades of every U.S. senator.

It’s an ongoing joke among financial Twitter circles about how Nancy Pelosi — a career politician — has amassed a net worth of over $170 million according to Newsweek. Yet, the average Congressmember’s salary is around $200,000.

Congress members are required to disclose their stock trades. And the staggering amount of success Pelosi has had lines up perfectly with many of the rulings she’s made shortly after.

When it comes to money, there are no coincidences.

The skeptic in you probably isn’t surprised to see the “Pelosi ETF” handily beating the S&P 500 index (below).

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Both Democrats and Republicans handily beat the market last year. “On average, Democrats were down -1.76% in 2022, whereas Republican members were up +0.4%.”

We shake our heads knowing there’s enough inside baseball preventing enough reform to remove these conflicts of interest. It’s why political trustworthiness continues to decline.

Hedge fund manager Ben Hunt, who writes the must-read Epsilon Theory, says “they’re not even trying to hide it anymore.”

But what doesn’t make many headlines is the same conflict of interest within Silicon Valley — primarily the premiere U.S. venture capital firms.

U.S. public and private companies are considered darlings by the mainstream. They’re outspoken on social issues. And they do everything in their power to position themselves as being on the right side of historical progress.

Yet, earlier this month, the Saudi Arabia’s Public Investment Fund (PIF) disclosed investments in more than 50 venture firms like a16z, Craft, Coatue, ICONIQ, and others.

PIF has also invested in some of the biggest private equity firms, i.e. Blackstone Inc. Apollo, and KKR & Co.

Unsurprisingly, it was just a couple days prior to the PIF release when Ben Horowitz (co-founder of Andreessen Horowitz) and Adam Neumann (founder of WeWork) openly praised Saudi Arabia as a “startup country.”

From TechCrunch (emphasis added):

“Andreessen Horowitz is openly courting capital from Saudi Arabia, despite U.S. strains.

According to Bloomberg, Marc Andreessen and Ben Horowitz appeared onstage with WeWork co-founder Adam Neumann to talk for at least the second time since November about their firm’s $350 million investment in Flow, Neumann’s new residential real estate company. Their choice of venue was intentional: The conference was organized by a nonprofit backed by one of Saudi Arabia’s largest sovereign funds, and Flow may launch in the Kingdom, says Bloomberg.

The three reportedly laid it on thick, with Horowitz praising Saudi Arabia as a “startup country” and saying that “Saudi has a founder; you don’t call him a founder, you call him his royal highness.”

Neumann separately also said, “It’s leaders like his royal highness that are actually going to lead us where we want to go.”

It isn’t shocking to see a firm of Andreessen Horowitz’s size and interests looking to cement relationships in Saudi Arabia. Though the 14-year-old outfit has never made public who its limited partners are, no one would grab at their pearls were it to be revealed that sovereign wealth funds from the region have helped boost the assets under management at the firm to $35 billion across its many funds. Indeed, back in October, Horowitz spoke at an investment conference dubbed “Davos in the Desert,” which is often a clue that someone is fundraising.

All the while, plenty of big U.S. businesses have continued to conduct business in the region. KKR and Saudi Arabia’s Public Investment Fund still work together routinely. JPMorgan said it planned to expand its operations in Saudi Arabia late last year. Saudi Arabia’s sovereign wealth fund and BlackRock signed an agreement a few months ago to explore infrastructure projects in the Middle East. (Saudi Arabia’s Public Investment Fund is also an LP in BlackRock.)

Yet, venture firms, which tend to paint themselves as more virtuous than other asset providers, have mostly remained secretive about any ties to the region. 

It’s easy to spot the conflict of interest when most of the biggest public companies took a stance against Russia, but remained silent on China.

It’s also easy to spot the conflict of interest as flip-flop on positions depending on where the wind blows.

But now we have to deal with all of our private institutions being compromised too?

Ignorance sure is bliss.

Good investing,

Lance

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