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If you're Saudi Arabia with a silly amount of money in cash, are you looking for 10-100x return out of this, or are you simply looking for a place to park liqui

If you're Saudi Arabia with a silly amount of money in cash, are you looking for 10-100x return out of this, or are you simply looking for a place to park liquid funds that won't lose as much as leaving it in German government bonds.

jahlove 7y ago
mega yachts aren't cheap
hogFeast 7y ago
No. Without overcomplicating things, Saudi are the dumbest money out there. They have no idea at all. Even the ones that have worked at IBanks, have no real understanding of basic finance (and likely only got the job so the bank could try to bribe members of their family). To get an investment, you just need to bribe the right people...that is how they invest (I used to know two very junior royal family members, they were unquestionably two of the stupidest people I have ever met...they failed school, ended up a prestigious uni, paid people to do their work, and then ended up in banking...somehow). I wouldn't try to analyse it. A smart Japanese guy took them for a ride, he took a cut, and then handed it to some software developers in Silicon Valley who saved some and then spent the rest. That is it. No value created. No investments. Just redistribution away from stupid people. Btw, this happened in the 1970s too. When the oil price spiked, the Saudis didn't know what to do with their cash so they just deposited it in US banks. The US banks didn't know what to do either so they started lending to South America. They knew what to do: politicians either stole it or handed it out as bribes to their supporters. The result was Citibank and a few other banks going insolvent in the early 80s, and a massive debt crisis in LatAm from 1980-1993(ish). ...the Saudis also gave a bit to Britain, who had their own debt crisis (also because of cash handouts to political supporters) and devalued a good chunk of their money away. They will lose money always.
- guynamedloren 7y ago
  This is fascinating. As somebody who knows nothing at all about this.. are there any detailed books on the subject?
- JMTQp8lwXL 7y ago
  Why not just put it index funds? If you already have far more money than you need, the average market rate of return should be acceptable. There's no need to try and 10x or 100x without, well, losing all of it, since the type of investments with that potential high of an upside are incredibly risky. Don't bet the farm.
  - hogFeast 7y ago
    Too much money. Once you pass a certain amount of money, it is very hard to diversify because you are such a large share of the market. I am not exactly sure where this number lies nowadays but once you pass $10bn or so, you can't own much outside the S&P500 without running into liquidity problems. The only market with infinite liquidity is US Treasuries (that is where the Chinese put their $3trn of foreign currency reserves). Mortgage-backed were liquid until GFC, and liquidity in corporates is falling because dealers can't carry inventory (afaik, not expert...MBS pre-GFC was ultra liquid for sure though and seen as an alternative to USTs). The Saudis own $150bn here (and growing because of Trump/MBS relationship apparently) but I think the issue the Saudis have is that they have a fucking huge budget deficit. There are tons of people on do-nothing, civil servant jobs (mainly royal family members), they have to spend a ton on defence (ostensibly against external threat but the royal family is terrified of an uprising too), and they spend a ton on welfare to buy popularity. They are definitely investing for a return.
luckylion 7y ago
Or are you spending money on PR that might even get you a direct ROI? Putting $50bn in VC that is primarily invested in the US likely buys you some sympathy, legitimacy and connections.

jahlove 7y ago

mega yachts aren't cheap

hogFeast 7y ago

No. Without overcomplicating things, Saudi are the dumbest money out there. They have no idea at all. Even the ones that have worked at IBanks, have no real understanding of basic finance (and likely only got the job so the bank could try to bribe members of their family). To get an investment, you just need to bribe the right people...that is how they invest (I used to know two very junior royal family members, they were unquestionably two of the stupidest people I have ever met...they failed school, ended up a prestigious uni, paid people to do their work, and then ended up in banking...somehow). I wouldn't try to analyse it. A smart Japanese guy took them for a ride, he took a cut, and then handed it to some software developers in Silicon Valley who saved some and then spent the rest. That is it. No value created. No investments. Just redistribution away from stupid people. Btw, this happened in the 1970s too. When the oil price spiked, the Saudis didn't know what to do with their cash so they just deposited it in US banks. The US banks didn't know what to do either so they started lending to South America. They knew what to do: politicians either stole it or handed it out as bribes to their supporters. The result was Citibank and a few other banks going insolvent in the early 80s, and a massive debt crisis in LatAm from 1980-1993(ish). ...the Saudis also gave a bit to Britain, who had their own debt crisis (also because of cash handouts to political supporters) and devalued a good chunk of their money away. They will lose money always.

guynamedloren 7y ago
This is fascinating. As somebody who knows nothing at all about this.. are there any detailed books on the subject?
JMTQp8lwXL 7y ago
Why not just put it index funds? If you already have far more money than you need, the average market rate of return should be acceptable. There's no need to try and 10x or 100x without, well, losing all of it, since the type of investments with that potential high of an upside are incredibly risky. Don't bet the farm.
- hogFeast 7y ago
  Too much money. Once you pass a certain amount of money, it is very hard to diversify because you are such a large share of the market. I am not exactly sure where this number lies nowadays but once you pass $10bn or so, you can't own much outside the S&P500 without running into liquidity problems. The only market with infinite liquidity is US Treasuries (that is where the Chinese put their $3trn of foreign currency reserves). Mortgage-backed were liquid until GFC, and liquidity in corporates is falling because dealers can't carry inventory (afaik, not expert...MBS pre-GFC was ultra liquid for sure though and seen as an alternative to USTs). The Saudis own $150bn here (and growing because of Trump/MBS relationship apparently) but I think the issue the Saudis have is that they have a fucking huge budget deficit. There are tons of people on do-nothing, civil servant jobs (mainly royal family members), they have to spend a ton on defence (ostensibly against external threat but the royal family is terrified of an uprising too), and they spend a ton on welfare to buy popularity. They are definitely investing for a return.

luckylion 7y ago

Or are you spending money on PR that might even get you a direct ROI? Putting $50bn in VC that is primarily invested in the US likely buys you some sympathy, legitimacy and connections.