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SoftBank CEO Takes More Control in New $108 Billion Vision Fund

SoftBank’s Son is seeking to extend his reign as the world’s most influential tech investor with the launch of Vision Fund 2.

SoftBank CEO Takes More Control in New $108 Billion Vision Fund
Masayoshi Son, chairman and chief executive officer of SoftBank Group Corp., speaks during the SoftBank World 2019 event in Tokyo, Japan. (Photographer: Akio Kon/Bloomberg)

(Bloomberg) -- SoftBank Group Corp.’s founder Masayoshi Son unveiled a second enormous fund for technology investments, seeking to keep his place as the most influential investor in the industry.

The Japanese conglomerate aims to raise a total of $108 billion for the second Vision Fund, which would make it even larger than the first, unprecedented $100 billion effort. SoftBank is also taking more control -- and risk -- this time around, committing $38 billion in capital itself and replacing Saudi Arabia as the largest investor. Saudi Arabia’s Public Investment Fund, which chipped in $45 billion for the initial effort, was not mentioned in the announcement Friday.

SoftBank said the second fund is expected to collect money from Apple Inc., Microsoft Corp., Foxconn Technology Group and the sovereign wealth fund of Kazakhstan. Son also won broad support from Japanese financial institutions with seven identified as signing memorandums of understanding to participate.

SoftBank CEO Takes More Control in New $108 Billion Vision Fund

Son is aiming to raise a new massive fund every two or three years to take advantage of opportunities he sees in cutting-edge technologies such as artificial intelligence and autonomous driving. SoftBank in June disclosed the initial Vision Fund had earned 62% returns so far after investing $64.2 billion in 71 deals.

“I wasn’t sure it would be possible to raise $100 billion without Saudi money, but it looks like it is,” said Chris Lane, an analyst with Sanford C. Bernstein & Co. “I think it was a conscious decision by SoftBank to decrease the influence of the Saudis.”

Saudi Arabia’s PIF and Mubadala Investment Co., both key partners in the first fund, are still in talks about possible investments, said Daisuke Sawatake, a SoftBank spokesman. It’s not clear whether SoftBank or Saudi Arabia pushed for the country’s decreased role in the second fund.

Saudi Arabia and Crown Prince Mohammed bin Salman came under fire last year after the murder of journalist Jamal Khashoggi in a Saudi consulate in Istanbul. While Saudi officials have said the killing was carried out by rogue agents and have denied that the prince had any knowledge of their plan, U.S. politicians continue to press for further action in the case.

Amir Anvarzadeh, strategist at Asymmetric Advisors, balked at the idea that SoftBank had made a moral decision about its business relationships. In a research note, he wrote that Saudi Arabia and Mubadala may be leery of committing so much capital because of Son’s appetite for enormous risk. In one example, Son briefly considered putting $16 billion into WeWork on top of an existing $8 billion investment -- an unheard of concentration for a single deal -- before deciding to add only $2 billion.

SoftBank’s move to take a greater stake in the second fund does present risks for its future. S&P Global Ratings warned that its “plan to quickly launch a second investment megafund is a manifestation of an extremely aggressive growth strategy and underlying financial policy that are likely to continue to restrain its credit quality,” the agency wrote.

The Japanese financial firms that have signed MOUs are Mizuho Financial Group Inc., Sumitomo Mitsui Financial Group Inc., Mitsubishi UFJ Financial Group Inc., Dai-ichi Life Holdings Inc., Sumitomo Mitsui Trust Holdings Inc., Daiwa Securities Group Inc., and SMBC Nikko Securities Inc. Other contributors will include Standard Chartered Plc, an unnamed Taiwanese investor and the fund’s management, according to the release.

Satoru Kikuchi, an analyst at SMBC Nikko Securities in Tokyo, wrote in a research report that the broader group of investors and SoftBank’s contribution will grant the Japanese company more influence. Kikuchi also wrote that SoftBank may sell stakes in Alibaba Group Holding Ltd. and Sprint Corp. to pay for its investment in the second vehicle.

The original Vision Fund was announced in October 2016, but took another seven months for its first major closing. Saudi Arabia was the biggest investor with its $45 billion contribution, followed by SoftBank’s $28 billion and $15 billion from Mubadala, the Abu Dhabi wealth fund. Investors also included Qualcomm Inc. and Sharp Corp. The Saudis’ stake allowed them to act as something of a constraint on Son’s power at the original fund.

After decades of building his telecom empire, the 61-year-old is spending more time on investing. He has handed over the day-to-day management of SoftBank’s domestic telecom operations, a cash-cow division that went public in December, to his long-term lieutenant Ken Miyauchi. He has also engineered the sale of his Sprint wireless business to T-Mobile US Inc., a deal that is pending regulatory approval in the U.S.

In May, Son declared he is now spending the vast majority of this time on deals. “My heart and mind are full of energy for the Vision Fund, taking up 97% of my brain,” he said.

SoftBank shares have climbed 55% this year, including a 1.1% gain on Friday.

One question is whether Son will be able to keep up the pace and scale of investments. The first fund targeted stakes of over $100 million, in just two years amassing a portfolio of 82 leading technology companies, including Uber Technologies Inc. and WeWork Cos. Ride-hailing is the single biggest segment, including stakes in China’s Didi Chuxing, India’s Ola and Singapore’s Grab.

According to data from market researcher CB Insights, SoftBank Group was an investor in 24 of 377 global unicorns, startups valued over $1 billion. While several of its portfolio companies -- Uber and Slack Technologies Inc. -- have gone public, profitable exits for many others might still be years away.

Anvarzadeh is skeptical of SoftBank’s knack for making multi-billion investments in private tech companies before they try to go public. Venture firms in Silicon Valley historically have avoided such outsized bets for fear of driving up valuations and seeing returns tumble.

“Softbank’s strategy of bulking up and using its size to muscle into buying big stakes in late stage start-ups and unicorns depends on the IPO boom in loss-making firms to continue,” he wrote. Meanwhile, “it continues to raise the value of its existing unlisted holdings by simply providing a next round of financing at higher levels.”

Lane has argued that investors have underestimated the potential returns from Son’s investment efforts. In a report earlier this year, he estimated the initial fund’s net present value was $14 billion to $24 billion, assuming returns of 15% to 20%. He said the net present value of the current and future funds could be $50 billion to $85 billion.

“The first round of investors were betting on a man and betting on his vision, but the idea hadn’t been tested,” Lane said in an interview. “For the second round of investors, you can see the facts, you can see the returns.”

--With assistance from Peter Elstrom.

To contact the reporters on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net;Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editors responsible for this story: Edwin Chan at echan273@bloomberg.net, Peter Elstrom

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