Jared Kushner’s sham marriage of Israeli tech and Saudi money - Israel News - Haaretz.com
If Jared Kushner is to be believed, his mission of bringing Israel and the Arab world together by circumventing politics and religion and focusing on business is entering a new phase.
Kushner’s first attempt at this business-first strategy was the infamous “deal of the century,” which envisaged Israelis and Palestinians marching hand in hand into a brilliant economic future, pushed forward by tens of billions in aid and investment. That was a flop.
His second attempt was the Abraham Accords, which was driven by business and technology opportunities as much as by fear of Iran. That time Kushner scored, but the deal was political, not involving specific transactions.
His third and newest effort is more modest, but it puts into practice what he has been preaching by actually doing Israeli-Arab business.
This third chapter began when Saudi Arabia, through its Public Investment Fund, agreed last year to put $2 billion into Kushner’s newly formed private equity fund, Affinity Partners. Now, according to a report in The Wall Street Journal, the Saudis have agreed that some of Affinity’s money can be invested in Israeli startups.
“If we can get Israelis and Muslims in the region to do business together it will focus people on shared interests and shared values,” Kushner told the Journal. “We kicked off historic regional change, which needs to be reinforced and nurtured to achieve its potential.”
As investments go, however, we’re talking about small change. The Journal says Affinity will invest “millions of dollars” in Israeli tech companies, but that won’t go very far in an industry where the median investment in a single company in the first quarter was $8.1 million. Anyhow, given that Kushner’s fund has a little over $2.5 billion in assets, according to its latest filing with the U.S. Securities and Exchange Commission, Israeli tech will only be a tiny part of the portfolio.
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Okay, it’s small change, but could it be significant small change? Saudi Arabia’s first baby step into Startup Nation? Prince Mohammad bin Salman, who runs the kingdom for his elderly, ailing father King Salman, is keen to turn Saudi Arabia into a high-tech center. An Israel connection could help move things along.
But it’s not much of a connection. You won’t be finding the prince networking at Tel Aviv biotech conventions or sharing a cappuccino with Israeli entrepreneurs at a trendy cafe in Herzliya Pituach. The Saudi investment through an American fund creates space between Riyadh and Tel Aviv.
Moreover, Affinity itself plans to be a relatively passive investor, taking minority stakes and not getting involved in management.
In other words, the Saudis won’t be getting any hands-on tech experience from their Affinity investment. So who is getting what out of this deal?
The smell test
From the start, Kushner has framed his business-first strategy in idealistic terms, as a way of breaking the Palestinian impasse that has prevented Israel and the Arab world from getting past wars and terrorism and moving on to peace and prosperity. During his White House years, his claim to disinterested idealism could pass the smell test.
Back in the private sector, however, it’s hard not to see his courting the Saudis as a way to raise and make money, no questions asked.
As was reported in The New York Times, the financial experts at its Public Investment Fund wo last June examined the offer to put money into Affinity were strongly against it. But they were overruled by the Crown Prince. As master of the PIF, the prince doesn’t have to explain his decisions to anyone, but it was assumed that he saw the investment as a $2 billion thank-you note for Kushner’s unwavering support for him and the kingdom during the Trump years. Or maybe it was a down-payment on ensuring a friendly White House in the event that Trump returns to office.
Some of the experts’ objections about the inexperience of Affinity’s management seem to have since been addressed. Late last year the fund hired two experienced investors: Bret Perlman, formerly of Blackstone Group and Elevation Partners, and Asad Naqvi, whose background is in financial services investments.
But they report to Kushner, who has no track record as a private equity investor and whose brief experience in real estate deals is hardly encouraging. Moreover, if media reports are correct, the fund’s top staff contains Kushner associates Avi Berkowitz and Aryeh Lightstone, neither of whom have any business experience at all.
In other words, far from being a team of stellar investors, Affinity looks more like a friends-of-Jared club topped off with a pair of names to give it respectability.
Picky, picky
In any case, the Saudi experts’ other doubts about Affinity remain valid, as best as I can tell (the fact is that Affinity fund offers almost no public information about itself – it doesn’t seem to even have a website). Among other things, the experts expressed concern about the fact that the Saudi fund would be responsible for the “bulk of the investment and risk;” the “excessive” management fee Affinity would be charging the PIF; and worries about the “public relations” risk of putting money into a fund run by an ex-Trump aide.
As to the first concern, the bulk and risk of the investment, the SEC filing shows as of March 31 that Affinity had raised $2.54 billion in funds, of which $2.51 billion was from foreign investors, in other words, mostly the Saudis.
The amount also tells us that Affinity has failed to make its case to any other big investors in the 10 months since the Saudi fund gave the nod. Affinity isn’t even halfway toward its goal of raising $7 billion.
As to the management fee, when all the dust clears Kushner and friends come out ahead financially no matter how the fund performs. The Saudi fund agreed to pay Affinity 1.25 percent of the assets per year, which means it will be paying Kushner’s vehicle $25 million a year even if the fund fails to generate a profit.
As to the experts’ third concern about the PR risk, that cuts two ways. It’s not just that the PIF has to worry about its reputation: so do the companies that agree to take its money, even if it is one degree removed by coming via Affinity.
At a time of heightened concern about clean capital and when oodles of money available for Israeli startups from all over the world, including the Gulf, few Israeli tech companies need to be taking money tainted by Prince Mohammad’s reputation as a murderous autocrat.