SoftBank Vision Fund – UB40

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Pressure to employ capital is the biggest risk.

• SoftBank has announced that the first round of its $100bn Vision fund has closed with $93bn in committed capital but the problem now is going to be how to quickly put this huge amount of money to work.
• At $93bn, the SoftBank Vision Fund ranks as the third largest private equity fund globally, behind KKR with $98bn and Blackstone which has $311bn in assets under management.
• The investment strategy will be wide with the fund looking to target long-term investments in both private and public companies right the way across the technology sector.
• The one exception appears to be semiconductors but the fund will have some exposure there if it takes up its option to take a 25% stake in ARM.
• The fund is clearly intending on having a significant influence on the activities of the companies in which it invests as the aim is to supply growth capital and accelerate the development of disruptive technologies.
• I am pretty sure that this will also involve turn-around situations as most disruptive technology and requirement for growth capital is to be found in small companies.
• With the Vision fund’s lowest investment size at $100m, start-ups and small companies are clearly off the table
• The main investors are SoftBank ($28bn), the Public Investment Fund (PIF) of the Kingdom of Saudi Arabia ($45bn estimate) and Mubadala from United Arab Emirates ($15bn estimate).
• I estimate that between them they make up 95% of the funds committed.
• Apple, Qualcomm, Sharp and Foxconn Technology Group make up the other 5%.
• The fund will shave the option to acquire a 25% stake in ARM ($8.2bn) as well as some or all of SoftBank’s investments in Guardian Health, Intelsat, NVIDIA, OneWeb and SoFi.
• It is worthy of note that SoftBank’s investments in Alibaba or Flipkart which fit the criteria for the Vision Fund do not appear to be included as potential contributions.
• If the fund decides to take these investments, they will be offset against SoftBank’s $28bn commitment to the fund.
• I suspect that the biggest issue that the fund will face will be pressure to find good investments.
• Rivals such as KKR, Blackstone etc. have grown their asset base over time but here the Vision Fund has $93bn at its disposal from day 1.
• Consequently, its main shareholders will be wanting to see their money quickly put to work opening the door to making rapid but sub-optimal investments.
• I hope that SoftBank’s recent (on ongoing) experience in India will be heeded as an example of what happens when too much capital chases too little paper on a wave of hype and optimism.
• Common sense indicates that the shareholders will not be putting up all of the capital on day 1 but as the investment opportunities arise, they will contribute their share as per the commitments that they have made.
• This is made all the more likely as I understand that PIF will be raising the money from other investments that it is holding and Mubadala did not have $15bn of spare cash on its balance sheet at the end of 2016.
• Although the Vision Fund is the third largest private equity fund globally, it is the largest that is dedicated to technology and consequently, it should be a major player in sector going forward.