What we learned from OpenAI’s failed coup: don’t bet against capitalism

The turmoil at OpenAI suggests investors are better off ignoring ideology and sticking to tested principles that make markets work – profits and self-interest. SAMIR MEHTA explains

• Parallels between OpenAI turmoil and China’s view of the world
• Don’t get captured by ideology: Mehta
• Find out about Samir Mehta’s Pendal Asian Share Fund

HERE’S a puzzle. Name an organisation that would fit under this mission statement:

Prioritising collective welfare over financial gain, and guided by a philosophy that aims to transform society for the greater good, our mission is to create a lasting, positive impact for the people, free from capitalist constraints.

If you said the Chinese Communist Party, you’d be right.

If you said OpenAI, the high profile not-for-profit that tried to oust its CEO two weeks ago — you’d also be right, points out Samir Mehta, who manages Pendal Asian Share Fund.

“Chinese president Xi Jinping has a genuine belief that the Western world is corrupt; the CCP and only the CCP has the moral rectitude to decipher the right way ahead,” says Mehta.

“This means a new world order, away from profit, capitalism and democracy.

“I find it fascinating that OpenAI was formed with somewhat similar intentions of saving humanity.

“But they never considered the fact that doing good for humanity needs a lot of money.”

What we can learn from OpenAI’s failed coup

The ouster of OpenAI CEO Sam Altman was engineered by OpenAI board members who feared that his plans for unbridled development of AI technology posed an existential threat to humanity.

Only a non-profit, highly-regulated and collectivist approach by people who know what is good for humanity could safely develop the technology, they reasoned.

The boardroom coup failed.

Altman was soon reinstated with the backing of major shareholder Microsoft – and the board members were replaced.

What can investors – especially those keeping an eye on China — learn from this astonishing episode?

The struggle for control at OpenAI highlights the tension between a non-profit mission to benefit humanity and the capitalist reality that billions of dollars are required to make that happen, says Mehta.

“It reminded me of when Xi Jinping came down on Chinese companies like Ant Financial and Alibaba’s founder Jack Ma,” says Mehta.

And yet, Chinese fast-fashion retail giants such as Shein and Temu continue to conquer the world.

“There are parallels between Chinese and American ideologies,” says Mehta.

“They are ostensibly diametrically opposite, but when it boils down to business and you peel away the onion, there is very little difference between the two.”

China’s underlying capitalism

For all the policy action in China, capitalism continues unabated, says Mehta.

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“There are shackles (literally in some cases) put onto individuals who have been made examples of, like Jack Ma. Yet business in China is ultimately the survival of the fittest.

“Look no further than electric vehicles.

“There were hundreds of EV companies in China nurtured by different provincial or city governments that you and I will never hear about.

“Ultimately, a handful – likely led by BYD, X-Peng and Nio – will expand and dominate.”

Lessons for investors

The lesson for investors? Don’t be tempted to bet against capitalism, argues Mehta.

“At the end of the day, rapid technological change drives people, companies and nations to act for their own benefit.

“When Russia invaded Ukraine and energy prices rose, even Europe suspended its bans on coal and bought cargoes of LNG at exorbitant spot prices that were contracted to poorer countries like Pakistan.

“Attempts to mandate changes to behaviour ultimately make little dent to the reality of what is driven by power, profits and capitalism.

“Government intervention can help — but in the big picture, it is marginal.”

What does that mean for investors?

Look through threats of regulation and dreams of altruism to hold the best, profit-generating and well-managed businesses, argues Mehta.

New global players such as Chinese fast-fashion retailers Shein and Temu (not held in Samir’s Pendal Asian Equities Fund) are a case in point, he says.

“Western consumers are willing to buy cheap, disposable fashion ultimately destined for landfills.

“Yet these businesses are innovative and are disrupting some of the best companies in the world.”

Mehta points to Chinese equities held in his Pendal Asian Share Fund such as gaming giant Netease, which has survived a regulatory crackdown and is “absolutely swimming in cash”, and Tencent Music, which has transformed and prospered despite restrictions on the live streaming parts of its business.

“Despite the communist party’s ideology, the Chinese economy still has pockets of very aggressive, capitalism.

“That capitalism is what is driving new technologies, new ways of doing business and new businesses.”

The OpenAI lesson

As for Open AI and other generative AI businesses, a similar story will play out, believes Mehta.

“A huge fissure divides those who believe in the possibility that AI will harm us and others who believe AI will help solve humanity’s problems.

“Whichever side is more right than wrong, we are already on a path of AI progress which is difficult to control.  

“It is such a powerful technology that someone or other will step into the void and run with advancement.

“The lesson for stock investors is that when faced with a crisis and negative perceptions around how regulation will likely overwhelm businesses, you want to dig below the surface and find those companies and managements who might be able to come through the crisis.

“Therein lies an investment opportunity.”

About Samir Mehta and Pendal Asian Share Fund

Samir manages Pendal Asian Share Fund, an actively managed portfolio of Asian shares excluding Japan and Australia. Samir is a senior fund manager at UK-based J O Hambro, which is part of Pendal Group.

Pendal Asian Share Fund aims to provide a return (before fees, costs and taxes) that exceeds the MSCI AC Asia ex Japan (Standard) Index (Net Dividends) in AUD over the medium-to-long term.

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management. 

Contact a Pendal key account manager here