Author: openjargon

• Children of Russian elites are addressing the St. Petersburg International Economic Forum.
• Russian President Vladimir Putin's low-profile daughters are slated to speak at the event.
• Russia's flagship economic event used to attract high-profile international attendees before the Ukraine war.

It's the time of the year for the St. Petersburg International Economic Forum — or the "Russian Davos," as it's sometimes called.

For years, Russian President Vladimir Putin's flagship business and investment event has attracted the world's elites, including French President Emmanuel Macron, Chinese leader Xi Jinping, Indian Prime Minister Narendra Modi, and former German Chancellor Angela Merkel.

This list of high-profile world leaders has become substantially shorter since Russia invaded Ukraine, triggering sweeping sanctions against Putin's regime.

This year, the biggest names attending the event include Bolivian President Luis Arce and Zimbabwean President Emmerson Mnangagwa.

But the four-day economic forum, which started on Wednesday, now also features the children of the Kremlin's top echelons, Bloomberg reported on Wednesday.

The nepo babies in attendance include Maria Vorontsova and Katerina Tikhonova, Putin's low-profile daughters.

Vorontsova, a 39-year-old endocrinologist, is representing the Russian Association for the Promotion of Science. She is slated to speak about bioeconomics.

Meanwhile, 37-year-old Tikhonova, who heads the Innopraktika center — backed by state-owned companies — is slated to join a panel to speak about the military-industrial complex.

Other Kremlin offspring addressing the event include Ksenia Shoigu, the daughter of the former defense minister, who is slated to moderate a panel, and Kremlin Chief of Staff Anton Vaino's son, Alexander, per Bloomberg.

The second generation of Putin's inner circle appears to be stepping up now that their elders are aging; the Russian leader himself is 71 years old. However, the reason could also be tied to self-preservation in the authoritarian system, Ekaterina Schulmann, a political scientist at the Carnegie Russia Eurasia Center in Berlin, told Bloomberg.

"To be safe, you have to be in the system," Schulmann told the media outlet.

In the past, Russia's elite were able to send their kids overseas to hedge their risks should anything go awry at home. But sanctions and heightened scrutiny have made this option much more difficult now.

"Now that this opportunity has become harder, the way to protect themselves is to appoint their children as bosses," Schulmann told Bloomberg.

Putin is scheduled to address the economic forum on Friday.

• Winning the AI race has long been a goal of Apple's. 
• The company brought in Google's AI chief John Giannandrea to lead their AI efforts back in 2018.
• But cultural clashes and insufficient computing resources set Apple's ambitions back.

Apple might seem like a laggard in the AI race right now, but it wasn't for lack of trying.

The Cupertino-based tech giant aimed to dominate the field when it recruited Google's AI chief, John Giannandrea, back in 2018.

Giannandrea's team, however, brought to the table as it was beset by cultural clashes and insufficient computing resources, The Wall Street Journal reported on Wednesday, citing people familiar with the matter.

According to the outlet, Giannandrea was brought in to lead the iPhone maker's AI strategy and improve the company's digital assistant, Siri.

The Scottish software engineer spent eight years at the search giant, where he led Google's machine intelligence, research, and search teams, before joining Apple.

But Giannandrea's team, which was largely made up of ex-Googlers and staff from Apple's startup acquisitions, had a tough time fitting in with the rest of the company.

Cultural clashes fuelled internal tensions

Even though Apple placed a huge emphasis on setting and meeting tight deadlines, Giannandrea's staff tended to emulate Google's approach of having loosely defined deadlines. And that culture clash made it difficult for other Apple engineers to work with Giannandrea's team, per The Journal.

In fact, some teams ended up ignoring Giannandrea entirely and went ahead with their own AI projects.

Former Apple employees told The Journal that the company's software chief, Craig Federighi, directed his staff to develop their own AI capabilities in image and video recognition.

Insufficient AI chips limited Apple's efforts

It also didn't help that Apple didn't manage to buy enough AI processors.

The chips, which are highly coveted by tech companies trying to establish themselves in the field, are critical for training AI models.

The shortage of computing resources ended up limiting Apple's AI efforts, with Giannandrea's team turning to external cloud services like Google to train their models, per The Journal.

Representatives for Apple didn't immediately respond to a request for comment from BI sent outside regular business hours.

Apple's travails with AI underscore the immense challenges faced by tech giants trying to become dominant players in the field.

For one, great AI talent is scarce and hard to come by. This has turned recruitment into a zero-sum game, with tech giants brazenly poaching staff from one another with eye-watering pay packages.

Back in March, The Information reported that Meta CEO Mark Zuckerberg was trying to recruit AI researchers from Google's DeepMind with personally written emails.

Even if money isn't an issue, tech companies still have to contend with the ongoing supply shortages for AI processors made by chip giants like Nvidia.

The mad dash for chips has been a huge boon for Nvidia's stock price, which has gained by more than 3,300% in the past five years.

On Wednesday, Nvidia's market capitalization soared above $3 trillion, pushing it past Apple to become the second most valuable company in the world.

For now, it seems that Apple will be trying to win the AI race with a different strategy — by partnering with Sam Altman's OpenAI.

Apple is set to announce its partnership with the ChatGPT maker during its annual Worldwide Developers Conference in June, per Bloomberg. The company is also expected to unveil its AI offerings, which could include an overhaul of Siri.

• Apollo's Scott Kleinman warned of a "dry spell" for investors as deals from a friendlier era unwind.
• Managers must adjust financial projections from deals done in the zero-interest rate era.
• Investors want their money back, but managers often don't want to sell at a perceived discount.

A leading private equity executive just warned that investors are in for a "pretty dry spell for a few years."

"I'm here to tell you everything is not going to be OK," Scott Kleinman, the co-president of Apollo Global Management, said at a session during Berlin's SuperReturn International conference on Wednesday.

Managers have to adjust their financial projections for deals struck in the looser world of zero interest rates, when financing was cheap and consumers spent more.

"It's going to be a little bit tougher for private equity firms to see the types of returns they were looking for, versus in years past," Kleinman told Bloomberg Television on the conference's sidelines.

Some fund managers have to think creatively about how they wind down these deals, since the public markets have been touch-and-go for initial public offerings and potential private buyers have higher debt costs than a few years ago.

Private equity firms can't hold their investments forever. Their fund agreements typically limit their involvement to about 10 years, from fundraising to purchasing to selling, although it's become more common for investors to agree to extend the fund's life.

Investors don't want their money tied up for long, since they can't reinvest it. Across every stage of investing, from venture capital's startups to private equity's late-stage companies, investors are clamoring to get their money back. But managers don't want to sell at what they think is a discount to what the investment is worth.

"Eventually, sponsors are just going to have to accept that the valuation environment is lower and start selling companies," Kleinman said.

Apollo, long known for distressed investing, will be ready to invest: It had $65 billion of dry powder on hand at the end of the first quarter. The firm manages more than $670 billion overall.

• A retired UK colonel and a war historian are sounding the alarm on Britain's tank production.
• They warned against relying on advanced weapons too costly to scale up, a mistake Nazi Germany made.
• Their chief concern is with the Challenger-3 tank program, which is set to produce 148 vehicles.

A retired British Army colonel and a World War II historian are urging UK authorities to recalibrate weapons production, saying Britain is too fixated on building world-class military tech that it can't scale up.

This was the same problem that partially brought Nazi Germany to its knees, wrote Hamish de Bretton-Gordon and James Holland in a commentary published on Wednesday by The Telegraph.

"It would appear we are doomed to repeat the mistake Nazi Germany made in the Second World War — relying on sophisticated weaponry that is too expensive for mass production and will never produce decisive battlefield results," wrote the pair.

Holland is a World War II historian, and de Bretton-Gordon led several commands in his 23-year military career, including NATO's Rapid Reaction CBRN Battalion and the UK's Joint Chemical, Biological, Radiological, and Nuclear Regiment. Before he retired, de Bretton-Gordon was an assistant director in intelligence services.

Not enough tanks

One of the pair's major concerns is the Challenger-3 program, which aims to supply the UK with its latest, best-in-class tank fitted with a powerful 120mm smooth-bore gun.

But the UK is only planning to field 148 of them, and de Bretton-Gordon and Holland said that's far too few to fill the country's defense needs.

They recalled how Nazi Germany had obsessed over the quality of its tanks, chiefly the King Tiger, but meanwhile only managed to produce less than 500 of them. The tank most heavily produced by Germany at the time was the Panzer IV, but even so, Hitler's industrial complex built 8,500 vehicles at maximum.

Holland and de Bretton-Gordon contrasted that to the US producing more than 50,000 Sherman tanks and the Soviet Union building up to 84,000 T-34s.

In total, Nazi Germany built just under 50,000 tanks during the war, while the US built over 100,000. The Soviet Union built nearly 120,000 tanks.

The sheer numbers made a difference in World War II, and they'll make a difference now, de Bretton-Gordon and Holland wrote.

"The old adage of 'mass matters' is as relevant in the battle for the Donbas today as it was for the battles of Kursk, a few kilometers to the east in 1943," they wrote.

The UK's current main battle tank is the Challenger-2, with an estimated inventory of 227 vehicles. However, a UK Defense Committee report in March 2023 said that only about 157 are available for operations in a 30-day notice.

Western tanks such as the Challenger 2 and Leopard 2 might win against their adversaries in a one-on-one fight, but the Ukraine war is showing that they aren't making enough of a difference because Kyiv lacks the mass to push through Russian lines, the war experts wrote.

As the pair put it: "One leopard is no match for a pack of hyenas."

Advanced technology can still turn the tide of battle, but it must be a given that the enemy cannot counter the threat, they added.

Both called on UK authorities to "wake up," writing:

Whoever leads the country next needs an urgent Defence Review. Two massive aircraft carriers and 150 tanks are no deterrence to the likes of Russia or China. And it is these countries which we need to design our deterrence around, not some imaginary enemy that suits single service rivalries. Ten billion pounds spent on tanks rather than carriers would give us the conventional deterrence so lacking at the moment, for instance.

Notably, de Bretton-Gordon was also once a commander of the 1st Royal Tank Regiment.

Russia's mass-production game

In June 2023, de Bretton-Gordon praised British armor for its quality in his commentary on the war in Ukraine. He said that Kyiv's battle doctrine allowed it to effectively use tanks supplied by the UK against Russia's low-morale conscripted forces.

"As a former tank commander, I know the Challenger 2 vastly outmatches what's left of Russia's armor," de Bretton-Gordon wrote.

While de Bretton-Gordon continues to laud the capabilities of British tanks, the optimism and global conversation regarding Ukraine has shifted as Russia puts its economy on a war footing.

Moscow quickly expanded its defense manufacturing complex and recruitment drives to fuel mass reinforcements in Ukraine, prompting worries that it could sustain its heavy losses for several years.

Ukraine, meanwhile, is desperately trying to fill its ranks with more men and had a significant tranche of US aid delayed in Congress for months. While the flow of military equipment has resumed, Kyiv's need for manpower is still great.

• Russia's economy is "definitely and strongly overheated," said Sberbank CEO Herman Gref.
• Gref said it's "impossible" to exceed the current production capacity, which is at 84%.
• Russia's sanctions-hit economy grew 3.6% GDP last year, driven by wartime activities.

Russia's economy appears to have an intensifying issue following more than two years of war with Ukraine: It's overheating.

Herman Gref, the CEO of Sberbank — Russia's largest bank by assets value — said the country's economy is "definitely and strongly overheated," TASS state news agency reported on Tuesday.

Gref, who was speaking in parliament, said production capacity was at a historically high level of 84%. He added it's simply "impossible" to cross this production capacity threshold and produce even more.

At first glance, Russia's economy appears unusually resilient despite the West's sweeping sanctions. It posted 3.6% GDP growth last year.

However, reports from Russia suggest the country's economy is primarily driven by wartime activities that generate demand for military goods and services, subsidies that steady the economy, and sharp policy-making.

Rosy GDP figures alone are not a good measure of economic performance during wartime since weapons and munitions don't better the quality of life for Russians or contribute to future economic growth, Sergei Guriev, a former chief economist at the European Bank for Reconstruction and Development, said in January.

Gref was speaking in the context of Russia's central bank's tight policy. Its key interest rate at 16%. He said the central bank is pursuing a rational policy and that the economy must weather the current high-interest rate cycle, even though it is "unpleasant."

"There is no other way. We know approximately when rates were not raised for political reasons, and then how it ended," he said, referencing Turkey. The Turkish central bank has hiked interest rates all the way up to 50% to deal with persistent runaway inflation.

Gref's concerns echo those of Elvira Nabiullina, Russia's top central banker, who issued a warning in December that the country's economy was at risk of overheating.

Russia's labor crisis

Russia's inflation is in part due to a labor crisis. Its war in Ukraine is siphoning manpower away from its economy.

Russia's unemployment rate hit a record low 2.6% in April, while real wages jumped nearly 13% in March from a year ago due to an ongoing labor crunch, official data shows.

The manpower crunch has gotten so bad that the Russian military is now offering sign-on bonuses and salaries that are so competitive that even the country's lucrative oil and gas industry isn't keeping up.

This, in turn, contributes to price hikes. Russia's inflation rate stood at 8.17% from May 28 to June 3 — up from 8.07% a week earlier.

Russia's central bank is slated to announce its next interest rate decision on Friday.