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Monday, December 14, 2020
Why George Soros Regretted Investing in Palantir?

The 90-year-old financial magnate George Soros, a philosophical investor, has experienced a lot of ups and downs in his life, yet he seldom has any regret. In November this year however, he confessed to having done something he regretted, i.e. investing in the Big Data company Palantir. Soros argued that Palantir's assistance to the U.S. government in warfare and surveillance is contrary to his political philosophy of an "open society". As a result, he reportedly sold off his shares regardless of the price. Behind this controversy is a clash of philosophies between two generations of "business philosophers".

Palantir is one of the world's most visible and controversial Big Data companies, founded in 2003 by the legendary Silicon Valley investor Peter Thiel, at a time when most people probably hadn't heard of Big Data. Notably, Palantir's first funding came from a CIA-funded venture-capital fund. Palantir's biggest client to date is still the U.S. Department of Defense, so it is seen as having ties to the U.S. military.

This enigmatic company's main service is to provide software systems that help clients integrating disorganized and even scattered data in different databases into information that can be used for decision making, and for the time being it is unique and has no competitors.

Palantir's most notable success was to help U.S. military capture and kill Osama bin Laden in 2011. While bin Laden was in the mountains of Pakistan and the U.S. military was unable to track him down despite having advanced weapons, the Palantir system automatically integrated a vast amount of seemingly unrelated and meaningless information to pinpoint the location of bin Laden's hideout. There are different narratives concerning how the U.S. could successfully track down bin Laden, and Palantir's information tracking is one of them.

Palantir is fittingly named after the crystal ball in the Lord of the Rings that can see all events, past and future. Finding useful information from seemingly meaningless volumes of data is Palantir's greatest strength and selling point. In recent years, the company has begun to commercialize this technology, and it has done so with great success. It has helped Airbus to improve the aircraft design and BP to stem the oil spill, creating significant economic benefits in a short period of time, as if by magic. That is why the U.S. military, Airbus, and BP have all become clients of Palantir. Palantir, in turn, charges significant monthly usage fees on SaaS (Software as a Service) basis.

Palantir's "magic crystal ball" is no mystery to information analysts, and its basic principle is not complicated, as it is based on the tracking of information to establish information about the target object, which includes intelligent data analysis based on Big Data. This also shows that the analysis of information content and information relationship is of great value in the information age.

The money-making Palantir had no intention of going public to raise capital, but as many of its early investors needed to cash out, the company went public on the New York Stock Exchange in September this year in the form of a direct listing where no additional capital raising is involved. It became highly sought after, with its share price soaring 186% from September 30 to December 12, reaching a market capitalization of USD 44.8 billion. Palantir's shareholding structure was revealed with the listing. The founders now own about 15% of Palantir, and the remaining investors include Canadian pension funds, BlackRock, Myriad Asset Management, and so on. Meanwhile, the early investors, i.e., the CIA and the U.S. military, are nowhere to be seen. The most notable shareholder was Soros Fund Management (SFM), which held about 1.5% of Palantir and the market sees this as "Soros putting expectations on Palantir".

Soros, however, stated in a public statement that he has completely cut ties with Palantir. He stated that SFM bought into the company in 2012 was led by one of its investment managers, who has since left. Soros added that while it was unclear the negative social consequences of Big Data at the time, he now disagrees with what Palantir's practices, and has offloaded all of its Palantir shares that it is not legally or contractually obliged to hold, and that he will continue to sell the shares as permitted.

Why then, was Soros so rarely regrets an investment? This is related to the fact that he was born in Nazi-ruled Hungary, fled to Britain at the age of 17, and later studied at the London School of Economics under the famous philosopher Karl Popper. He has been a lifelong believer in the concept of an open society and has championed for a free and open social system. Interestingly, Palantir founder Peter Thiel is also a philosophical figure, a Stanford Philosophy graduate whose book Zero to One is still regarded as the "Bible of Silicon Valley." The company's co-founder, CEO, and de facto head of the company is Alex Karp, a German Ph.D. holder, who started his business career in his 30s and is one of Silicon Valley's rare "philosopher CEOs."

In general, Soros, Thiel, and Karp are ardent advocates of Western-style liberal democracy, and there is no difference in their basic political philosophy. Karp has stated that Palantir's core mission is not to make money, but to support Western liberal democracies and their strategic allies for the sake of peace and prosperity around the world and to ensure that the Western liberal democracies remain strong. He has also stated that Palantir will not conduct business with regions that are at odds with the Western system. In its listing documents, Palantir states that it will not conduct business with China.

However, Soros does not agree with such an approach, arguing that Palantir provides the U.S. government with a Big Data tool that has the potential to lead the U.S. government becoming more centralized. For example, the U.S. government would use relevant technology to monitor its citizens, which is not conducive to an "open society". From the information disclosed by Edward Snowden, it appears that the U.S. government has long been conducting "permanently documented" surveillance around the world with or without the Palantir system.

Final analysis conclusion:

In an era of information explosion, information analysis is a powerful tool. Whether it is done by AI based on Big Data or manually, it is possible to find clues and discern trends and patterns in a complex world. There is nothing right or wrong with this tool of information analysis, and it is the users who decide how it is used. Like a weapon, it can be used either to kill, or to defend peace.

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