SoftBank plans to launch second Vision Fund with $108bn

SoftBank has said it plans to launch a second Vision Fund, and will raise $108 billion (€97 billion) from investors including Microsoft, Apple and the sovereign wealth fund of Kazakhstan to invest in technology start-ups.

The Vision Fund II follows a splurge of investments in Uber, WeWork and other technology companies over two years through its first $97 billion fund, which was mainly backed by the governments of Saudi Arabia and Abu Dhabi.

The announcement on Friday came in a regulatory filing to the Tokyo Stock Exchange, in which SoftBank said it would commit $38 billion to the new fund and had signed memorandums of understanding with other investors.

The Saudi and Abu Dhabi sovereign wealth funds were not mentioned, but SoftBank said that talks were continuing with both parties about their eventual involvement.

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SoftBank said Foxconn and "major participants" from Taiwan had signed memorandums of understanding, as well as seven Japanese financial groups including the top three banks - Mizuho, Sumitomo Mitsui Banking Corporation and MUFG Bank - and Dai-ichi Life Insurance and Daiwa Securities.

The new fund will target “market-leading, tech-enabled growth companies” to facilitate “the continued acceleration of the AI revolution”, said SoftBank.

One person close to the group said that SoftBank is aiming for a first close of the new fund in two months and that the group is expected to begin spending on behalf of the new entity immediately.

In the filing, SoftBank warned that its assumptions about the fund “should not be construed to be indicative of the actual events that will occur”. One of the named investors said that the MOUs have no legal status and the amount committed could easily change.

SoftBank Investment Advisers, the internal unit that manages the first Vision Fund and is headed by Rajeev Misra, a former senior Deutsche Bank executive, is likely to run the second fund.

Oustide fundraisers

SoftBank has been marketing the new fund for at least a year, and is working with a trio of outsider fundraisers, including Anshu Jain, the former chief executive of Deutsche Bank who is now at US brokerage Cantor Fitzgerald. It is also working with Goldman Sachs and London-based Centricus.

One of the aims of launching the new fund is for SoftBank to lower its dependence on a single investor, following the backlash against Saudi Arabia following the grisly killing of journalist Jamal Khashoggi in October.

Following the incident, even executives inside SoftBank voiced doubts about launching another Vision Fund.

But over the ensuing months, people close to the company said SoftBank had explored a wide range of options, including investment from Russia, although that idea was later dropped.

Some analysts questioned whether a larger investment from SoftBank in the second fund meant that its billionaire founder Masayoshi Son would have greater control over investment decisions, which in the first fund were often influenced by Saudi Arabia.

“Compared to before, Mr Son may have a freer hand to make bolder moves,” said SMBC Nikko Securities analyst Satoru Kikuchi. “I think that’s positive if it’s going to make it easier to implement Mr Son’s vision.”

Global investment powerhouse

SoftBank launched its first Vision Fund in May 2017 in an attempt by Mr Son to transform the group from a telecoms-centred conglomerate into a global investment powerhouse. So far, the fund has spent about $70 billion to invest in 80 companies.

For its share of the first fund, SoftBank transferred a 25 per cent stake in British chip designer Arm and partially listed its Japanese mobile subsidiary to raise money.

For the new fund, analysts said SoftBank may sell more of its shares in Alibaba and Sprint to raise some of its $38 billion commitment. SoftBank may have more flexibility once it has completed the merger between its US carrier Sprint and rival T-Mobile, which would offload about $40 billion of debt from its balance sheet.

The Vision Fund has made 29 per cent annual returns for investors from May 2017 through March this year, SoftBank said, based on the higher valuations of the portfolio companies.

The fund is notable not only because of its massive size but also because of its unusual structure. The Vision Fund is heavily leveraged, relying on an unconventional structure where 40 per cent of its capital is preferred securities that pay an annual coupon of 7 per cent. It remains unclear how the new fund will be structured.

SoftBank recently raised cash through at least $4 billion in loans against stakes in Slack, Uber and Guardant Health, which could be used to pay dividends to the first Vision Fund. – Copyright The Financial Times Limited 2019