Trump’s billionaires take the great leap forward

Shuli Ren, Bloomberg

With tech stocks and crypto currencies soaring, so much new wealth is being created that we sometimes forget $500 billion dollars is a lot of money, even in the venture capital world where being a billionaire is becoming commonplace.

Astronomical numbers are being thrown around. Last week, President Donald Trump heralded two major investment initiatives in the US. The Stargate joint venture involving SoftBank Group Corp., OpenAI and Oracle Corp. will initially invest $100 billion to build infrastructure including data centers for OpenAI, with a goal to deploy “at least” $500 billion down the road. Meanwhile, in virtual remarks at the World Economic Forum in Davos, Switzerland, Trump said Saudi Arabia’s Crown Prince Mohammed Bin Salman can “round out” the $600 billion he had promised in additional investments and trade with the US in the coming four years to — $1 trillion.

Setting aside the question of whether SoftBank, Oracle or even Saudi Arabia actually have the money, the explosion of billions of dollars into advanced technology and manufacturing can lead to in-fighting and inefficiencies, such as repeat investments and idle funds.

The last time any nation made such grand maneuvers was between 2015 and 2018, when Beijing pushed ahead with its “Made in China 2025” ambition through the so-called “guidance funds.” These state-backed investment pools act like venture capital or fund-of-funds, not unlike what Saudi Arabia is doing with its sovereign wealth vehicle, the Public Investment Fund. They funnel money into strategic areas, such as semiconductors, new energy and biomedicine.

All levels of administration, from the central to county-level governments, were involved. As of the end of 2023, China had set up over 2,000 guidance funds with a total target size of 12.2 trillion yuan ($1.7 trillion), and the capital raised had reached 7.1 trillion yuan, according to Zero2ipo Holdings Inc., an investment service platform.

Trump’s insistence that investments must be made in America can find a parallel in China, too. At the onset, when a municipal guidance vehicle invested $100 million in a venture-capital fund, it typically required the portfolio manager to spend between $150 million to $300 million in local businesses, or companies willing to relocate or set up factories in their jurisdictions. This led to discord among investors and less money ended up being deployed. These days, some regional guidance funds have stepped back, only asking that 40% of their money is spent locally, a sharp decline from a decade ago.

In a way, billionaires are not unlike China’s municipal party bosses — they have big egos and pet projects. Dozens of Chinese cities are now home to chip industrial parks, even though many are sub-scale and redundant. Will we see a similar competitive landscape in the US?

Of course, some of the billions floated around could just be empty words to placate a combative Trump who has threatened tariffs and sanctions to get what he wants. Riyadh, for instance, wants to leverage the $925 billion sovereign fund to get its portfolio companies to invest in Saudi Arabia, instead of elsewhere in the world. In 2023, net foreign direct investment accounted for only 1.2% of gross domestic product, well below the 5.7% target set by the crown prince’s Vision 2030. Indeed, the wealth fund’s US equity portfolio declined last year, as it sold shares in 18 companies at the onset of 2024, according to Global SWF’s analysis.

These big spending initiatives need to be thought through carefully. Bravado can lead to waste and chaos. Let Chinese President Xi Jinping’s experience with his trillion-dollar guidance funds be a lesson for Trump and his advisers.

[Abridged]

Courtesy Bloomberg/Shuli Ren