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The idea is to diversify away from oil, not to diversify away from risk.
by harryh 10y ago
The idea is to diversify away from oil, not to diversify away from risk.
- tyingq 10y agoWell, I assumed diversify away from "high risk", given that oil is pretty "high risk" over the long term for them.
- elastic_church 10y agoNot as big of a deal as you imagine. Diversifying now is the optimal scenario. Booms busts they'll be ok
- deleted 10y ago[deleted]
- sf_rob 10y agoThese are seemingly non-correlated assets. Saudi Arabia is (apparently) minimizing their diversifiable risk, not minimizing their investment in risky sectors altogether.
- gchadwick 10y agoAnother point is $3.5b sounds like a big number but likely a rather small portion of the Saudi's sovereign wealth fund. Putting a low % of your portfolio into risky, but potentially highly valueable asset is generally seen as a reasonable thing to do.
- tyingq 10y agoI agree it's small in their terms, but as mentioned, the concern is that it's not small in terms of who Uber might go back to when they are running low. Sort of like a poker game where you have to keep buying in to keep the house afloat.
- Retric 10y agoThe problem is risk vs upside. If you make a 3.5 billion dollar bet for less than 100% and it became the largest company on eart that's not a huge ROI.
- MegaButts 10y agoI'm not very optimistic about Uber, but where else can you potentially get a 10x return on a 10 digit investment?
- Retric 10y agoLot's of smaller but good investments vs a lower quality bad investment. The best option for sovereign wealth funds is probably buying the widest possible swath of companies that reach some basic criteria. I suspect they do massive deals because internal politics means being in charge of such a deal let's you gain more power even if it costs the country on average because a huge win on a 3.5 billion investment means little at that scale.
- harryh 10y agoSplitting up money into a bunch of smaller investments significantly decreases your chance of an outsized return and increases your chance for achieving the mean return for that asset class.
- Retric 10y agoA sovereign wealth fund already faces this problem as 3.5 billion is peanuts (aka under 1%) to them. Now if they could get a 10x return in one year that would be something, but a tiny odds for a 10x return in a decade is not worth the significant risks involved in such a terrible investment.
- harryh 10y agoYou might be correct that Uber turns out to be a terrible investment. But there are a lot of smart people out there that disagree with you. And, unlike you, a lot of them have gotten to look at the details of Uber's financials. I share your skepticism, but I'm not super confident in that belief.
- raiyu 10y agoSupposedly according to internal accounting the sovereign wealth fund is worth $2T as in Trillion. If they are able to capture and sell their oil reserves accordingly.