OpenAI’s sport of rooster | USAEMALL.com

One scoop to start: A former top German central banker is set to lead the supervisory board of the country’s most valuable fintech N26 as part of a leadership reshuffle that aims to resolve a conflict between investors and founders.

In today’s newsletter: 

OpenAI’s thorny restructuring

OpenAI’s position as the world’s most popular chatbot maker has allowed it to raise billions of dollars from investors, with the latest proposed share sale set to value the business at half a trillion dollars.

But complications over its corporate restructuring could endanger future fundraising plans.

The ChatGPT maker has been locked in discussions to rewrite its commercial contract with Microsoft and those talks are now likely to slip into next year.

That would allow investor SoftBank to withhold a $10bn commitment to OpenAI and hamper the AI group’s efforts to raise money in the future, according to DD’s George Hammond and the FT’s Stephen Morris.

Microsoft got in early at OpenAI with a partnership that gave it exclusive access to use and distribute the chatbot maker’s technology.

But for OpenAI to restructure, it’ll have to renegotiate that deal. And the trouble is, there are a couple of big sticking points.

First off, OpenAI wants to boost its revenues by giving other Big Tech cloud providers such as Google and Amazon Web Services the right to host its models.

At the moment, Microsoft has dibs on those rights and it has little incentive to change that. There might be a workaround though: the two sides are negotiating a narrow agreement that would enable OpenAI to only serve government customers that are not on Microsoft’s cloud platform.

The bigger disagreement is over Microsoft’s future access to OpenAI’s intellectual property.

The companies are arguing over whether Microsoft will be allowed to see how future models are trained or merely be allowed to use them in its products.

Related to that is an “artificial general intelligence” — or AGI — clause written into the contract between the two.

The clause lets OpenAI cut Microsoft’s IP access if its models reach a stage where they are “highly autonomous” and outperform humans at “most economically valuable work”.

It’s a slightly nebulous concept that could give OpenAI a way to eject Microsoft from much of the current agreement. OpenAI wants to keep the clause as leverage, but Microsoft wants to do away with it entirely.

There’s a lot on the line for both sides. If OpenAI insists on retaining the clause, it risks its restructuring dragging on into the new year, jeopardising future funding as it burns through cash at a furious clip.

It’s a staring contest and for now, neither side is blinking.

The hedge funds scaring reinsurers

The past few years have seen throngs of private investors descend upon the reinsurance sector, hoping to pull in higher yields than traditional fixed-income investments such as government bonds.

That could destabilise the centuries-old market for catastrophe cover, Stefan Golling, a director at Munich Re, the world’s biggest reinsurer, has warned.

Even insurance groups don’t want to shoulder all the costs of things going belly up. To shield themselves and spread that risk, they purchase insurance from other businesses, known as reinsurers.

For many years, that corner of the insurance market was dominated by the likes of Munich Re, Swiss Re and Warren Buffett’s Berkshire Hathaway.

Nowadays they’re facing competition from new players including hedge funds such as Elliott Management, and family offices.

Hedge funds and specialist fund managers have moved into property and casualty reinsurance over the past decade, with alternative capital in the sector reaching $115bn by the end of 2024, according to Aon. That’s up from $93bn two years earlier.

New entrants mean more options at a time when natural disasters are becoming more common. But Golling, a board member of the 145-year-old German insurer Munich Re, said it also introduces greater risk and volatility.

Golling told the FT’s Lee Harris that a big payout event could cause newcomers to lose their nerve. That could raise the price of insurance, he said, pointing to the aftermath of Hurricane Ian in Florida three years ago.

Private investors were uncertain about the losses they faced, prompting some to withdraw, which led to “stress” in the market, Golling said.

He also criticised private investors for only signing up to cover the most statistically improbable risks such as megastorms that occur once every few decades, rather than more common events such as hail.

Funnily enough, that’s a criticism often levelled at Munich Re and its peers.

Job moves

• Nuveen’s Churchill Asset Management has named Michael Foley to lead its institutional fundraising strategy as a senior managing director. He joins from Franklin Templeton.

• Jones Day has appointed Jeffrey Ruskin as a partner in its real estate practice in New York. He was previously a partner at McDermott Will & Schulte.

Smart reads

Old friends Citigroup’s banking chief Viswas Raghavan has been luring ex-colleagues from JPMorgan to help with his turnaround plan. Replicating their success at a new bank won’t be easy, ex-banker Craig Coben writes in the FT.

Xiaomi’s ambitions China’s largest smartphone maker was once known for outsourcing much of its manufacturing. It’s now building its own components and an EV production line to rival Tesla, the FT reports.

The Doge treatment An Afghan scholar who fled the Taliban helped US diplomats understand his homeland. The so-called Department of Government Efficiency put his family’s lives at risk by exposing his work for a government-funded non-profit, ProPublica reports.

News round-up

New Rio Tinto chief shakes up miner’s operations (FT)

Donald Trump says George Soros should be charged with racketeering (FT)

China seeks to triple output of AI chips in race with the US (FT)

Climate banking group pauses activities amid rising political pressure (FT)

UK long-term borrowing costs near highest level since 1998 (FT)