Saudi Investment Fund had big doubts before giving billions to Jared Kushner

Six months after leaving the White House, Jared Kushner secured a $2 billion investment from a fund led by the Saudi Crown Prince who was a close aide during the Trump administration, following objections from the fund’s advisers about the merits of the deal. in spite of.

A panel examining investments for the main Saudi sovereign wealth fund cited concerns about Kushner’s proposed deal with newly formed private equity firm, Affinity Partners, previously undisclosed documents show.

Those objections include: “inexperience of affinity fund management”; The state is likely to be responsible for “the bulk of the investment and risk”; Due diligence on the operations of the fledgling firm which they found “unsatisfactory in all aspects”; a proposed asset management fee that “seems to be excessive”; And “public relations risks” from Kushner’s former role as a senior adviser to his father-in-law, former President Donald Trump, according to the minutes of the panel’s meeting on June 30.

But a few days later, the full board of the $620 billion public investment fund led by Crown Prince Mohammed bin Salman, Saudi Arabia’s de facto ruler and beneficiary of Kushner’s endorsement, when he served as a White House adviser – Panel rejected.

Ethics experts say such a deal would herald a possible return to Kushner’s actions at the White House — or a bid to favor a future if his Trump wants and wins another presidency in 2024.

Kushner played a major role inside the Trump administration defending Crown Prince Mohammed after US intelligence agencies concluded he had approved the 2018 assassination and dismemberment of the Washington Post’s Saudi columnist and Virginia resident Jamal Khashoggi, who criticized the rulers of the state.

The Saudi fund agreed with Kushner to invest twice as much on more generous terms than it did with former Treasury Secretary Steven Mnuchin—who was also starting a new fund—even though Mnuchin’s first was a successful one. Record as an investor. Entering Govt, show documents. The amount of investment in his firm, Liberty Strategic Capital, was $1 billion and was not previously disclosed.

A spokesperson for Kushner’s firm said of its relationship with the Saudi Public Investment Fund, “Affinity, like many other top investment firms, is proud of PIF and other major organizations that have meticulous screening criteria as investors. “

A spokesman for the Saudi fund declined to comment on its investment process. If there were any additional discussions about the deal, they were not reflected in documents and correspondence obtained by The New York Times.

The Times reported last fall that Kushner was seeking Saudi investment. Now, internal fund records and correspondence obtained by the Times reflect the debate over the outcome, scale and timing of his firm’s deal as well. Those documents and other filings indicate that, at this point, Kushner’s venture relies primarily on Saudi money.

According to a document prepared last summer for the board of the Saudi Fund, Kushner plans to raise up to $7 billion in total. But so far it looks like they’ve signed some other major investors.

In its most recent public filing with the Securities and Exchange Commission on March 31, Kushner’s firm reported that its core fund had $2.5 billion in management, almost entirely from investors based overseas. Most of it appears to be $2 billion from Saudi Arabia.

Saudi documents obtained by the Times say that in return for its investment, the Saudi fund will receive a stake of at least 28% in Kushner’s main investment vehicle.

No laws or regulations impede the investment activities of former Administration officials after they leave the White House; Many people on both sides have benefited from the connections and experiences gained in government.

But Robert Weisman, president of the non-profit group Public Citizen, called Kushner’s relationship with the Saudis “extremely disturbing”, arguing that his approach to the state’s leadership as a senior adviser was a “business partnership”. reveals even more as a reward, and an investment in Kushner.”

Saudi officials say the Kingdom’s Public Investment Fund, which also holds stakes in ride-sharing company Uber and Newcastle United Football Club in Britain, operates autonomously, with an elaborate governance structure that includes investment panels. Is. But Crown Prince Mohammed took control of the fund when he came to power in 2015 and is the ultimate decision-maker.

Kushner, whose fund has not publicly disclosed any themes or focus, has little experience or track record in private equity. Before working in the White House, he ran his family’s commercial real estate empire, sometimes with disappointing results. His most famous deal was the 2007 purchase of an office tower at 666 Fifth Avenue in Manhattan for $1.8 billion; When the recession hit the next year, mortgaging the building became a serious obligation.

Diplomats, investors and ethics experts noted during the Trump administration that his anticipated return to the family business sparked a potential conflict of interest in Kushner’s relations with Crown Prince Mohammed and other oil-rich Arab royals. Many Americans are major long-term investors in real estate, and the Kushner family had attracted them in the past.

While advising Trump, Kushner developed a friendship and informal alliance with the Saudi Crown Prince. Crown Prince Mohammed indicated that he supports closer ties between Israel and the Arab monarchs of the Persian Gulf, which was one of Kushner’s priorities in the Trump administration. He helped negotiate a series of agreements called the Abrahamic Accords, opening diplomatic relations between Israel and other Arab monarchies. After leaving the government, he founded a non-profit organization to promote economic and other ties between the countries.

In Washington, Kushner helped broker $110 billion in arms sales to Saudi Arabia over 10 years. He helped protect those and other arms deals from congressional outrage over Khashoggi’s killing and the humanitarian devastation caused by Saudi-led military intervention in Yemen.

The debate within the Saudi fund over investment with Kushner was in stark contrast to the easy acceptance of the offer by Mnuchin, a former Goldman Sachs partner, who invested in several Hollywood films, including “The Lego Movie” and to rebuild a failed California bank. helped to survive. before coming to government

According to an executive summary prepared by the fund’s employees, Mnuchin’s fund focuses on cyber security, fintech and entertainment – ​​all sectors that fit Saudi priorities. The summary stated that Mnuchin’s work at the Treasury gave him “significant access toward understanding the future of the US financial system”, and that the firm’s founders had “deep experience at some of the highest levels of the US regulatory system”, Who supervised and supervised its industries. ,

As Treasury Secretary, Mnuchin also chaired a committee responsible for investigating certain merger deals with foreign companies; They have “shaped” the new fund to accommodate investments from foreign governments such as the state, the summary said.

In its most recent filing dated March 31, Mnuchin’s firm reported raising $2.7 billion from a total of 33 investors. Most of the money came from abroad, and Saudi documents say other Persian Gulf states also invested.

A spokesperson for Liberty Strategic Capital said the firm has a “diversified investor base, including U.S. insurance companies, family offices, sovereign wealth funds and other institutional investors.”

Both Kushner and Mnuchin’s fund treat the Saudi fund as a “cornerstone” investor, public investment fund documents say, giving Saudis a waiver on the standard 2% asset management fee for private equity firms as well as the firm’s 20%. deduction offered. The share of any fund profits, known as carrying interest.

But the Saudis agreed to pay Mnuchin’s firm only a 1% asset management fee, compared to 1.25% for Kushner, documents indicate. On the $2 billion investment, he would pay his firm $25 million annually, excluding the share of any profits earned by the affinity fund.

The two firms agreed to open regional offices in Riyadh, which the Saudi government says will soon require any international companies doing business with the kingdom.

The five-member board of investment committee that evaluated Kushner’s proposal referred to it with the code name Project Astro. The panel was led by Yasser al-Rumayun, a Harvard Business School graduate and chairman of Saudi Aramco, a state-owned oil company. The panel also included Andrew Liveris, former CEO of the Australian-born Dow Chemical Company, and Ayman Al-Sayari, vice chairman of the Saudi Central Bank.

A panel member identified in the minutes as Dr. Al-Mozail – possibly Ibrahim al-Mozel, chairman of the Saudi Industrial Development Fund, who holds a doctorate from Stanford – asked about the rationale for investing before June 30, 2021 . Kushner’s Fund. “Why is the strategic advantage worth the risk?” He asked according to printed responses.

Responses drawn out explicitly by Saudi Fund employees argued that Kushner’s firm, Affinity’s promised Riyadh office, would allow Saudis to “capitalize on the abilities of Affinity’s founders to have a deep understanding of various government policies and geopolitical systems.” will help.”

The explanation for the absence of any US institutional investors in Kushner’s fund was that he would “avoid media attention,” the written responses said. “Accordingly, Affinity has approached international investors on a very prudent basis.”

Kushner’s lack of private equity experience and the “unsatisfactory” results of due diligence reviews conducted on behalf of the Saudi Fund are “valid and significant concerns,” acknowledged the responses, but attributed the findings to the fact that he still was setting up infrastructure for his company.

In addition, the responses added, the Saudi fund had “partially mitigated these risks”: the Saudis determined that Kushner’s firm was “a qualified investment team, before including key operating professionals, for $2 Billion commitments can only take out $500 million.” and creation of investment committee. ,

(Late last year, Kushner hired two experienced private equity investors, Brett Perlman and Asad Naqvi; Affinity Partners now has a staff of 20, about half of whom are investment professionals, a recent securities filing said. Huh.)

Even after reading the responses, former Dow Chemical CEO Liveris and the Saudi Central Bank’s al-Sayari added their own skeptics with al-Mozel. The chairman of the panel and the Saudi Fund’s top executive, Al-Rumayyan, agreed, according to the minutes. Panel members did not respond to requests for comment or could not be contacted.

The Minutes record stated that all four panel members who attended the meeting “said they were not in favor of Project Astro.” The panel’s rules require a majority vote of those present to pass the motion, the minute notes. In this case, Al-Rumayyan suggested raising the “views and decisions” of the panel, led by Crown Prince Mohammed, to the fund’s board.

But within days, the board had passed a resolution approving the deal, documents show.

In a letter dated July 5, fund staff explained to a board member who questioned the size of the investment why it could not be cut back.

“The purpose of this investment is to build a strategic relationship with the Affinity Partners Fund and its founder, Jared Kushner,” the letter said. A reduction in the size of its $2 billion stake “could negatively or fundamentally affect the framework of the agreed strategic and commercial relationship.”

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