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PE Panorama: SoftBank’s mounting travails

By Paul Mackintosh   
November 28, 2022

SoftBank’s woes mount so fast you almost need a vulture’s wings to soar above them. The onetime technology investment titan has now recorded consecutive second and third quarter losses of US$17 billion and $7.2 billion, respectively, from its Vision Fund. I'm surethere are pension funds in the world that are smaller than those losses.

Unsurprisingly, SoftBank's shares fell 12% in mid-November after the firm failed to announce an expected share buyback programme. Now, according to a Financial Times report, founder Masayoshi Son owes his own company $4.7 billion for money he borrowed to buy stakes in his funds. As of mid-November, Son announced he will no longer be involved in day-to-day running of the group.

SoftBank’s Vision Fund long reigned supreme as the world’s largest private investment fund, with over $100 billion in committed capital, chiefly from Middle Eastern sovereign wealth funds. According to a report in India’s Economic Times, the fund has now lost some $50 billion.

Meanwhile, the successor Vision Fund 2 only ever succeeded in raising substantial capital from the parent group and Son himself, yielding an aggregate $53 billion. The Vision Fund 2 was one of the losers from the collapse of crypto firm FTX in November.

You've got to wonder about the discrimination that led SoftBank and its peers to plough billions into the now-collapsing and environmentally devastating crypto sector. Double materiality can't come soon enough to rein in such propositions. SoftBank’s vision of the future now appears frighteningly one-dimensional, focused more on tech promise rather than environmental pressures, and likely to fare less and less well as new sustainability reporting regimes come into effect. What might the Vision Fund have achieved if all its capital went into environmental and new energy investments instead of the likes of WeWork and FTX?

Perhaps SoftBank was the best designed spigot for pouring the speculative cash unleashed by global quantitative easing in the cheap money era into doubtful propositions. But you'd think that earlier hiccups such as the failed initial public offering of WeWork would have alerted investors. Evidently not. Some commentators at Seeking Alpha are still calling out SoftBank as a good option for tech exposure. Caveat emptor.

Institutional investors should take note of how badly private markets strategies can fail, especially when led by charismatic, “high-conviction” investors. Reflect on how suspiciously well private asset valuations have still held up during the tech rout, when publicly traded peers are slumping. Consider the wisdom of investing in funds whose main performance indicator is what the fund manager tells you it is.

And ponder the example of SoftBank, which has managed to devastate the value of the world’s biggest private fund.