Breakingviews - SoftBank hedge fund would suit Son, not investors

The logo of SoftBank Group Corp is seen at the company's headquarters in Tokyo, June 30, 2016.

LONDON (Reuters Breakingviews) - SoftBank’s Vision Fund chief, Rajeev Misra, may have a cunning hedging strategy for the giant technology investor. He’s pushing to raise as much as $4 billion to make bets on listed companies, the Financial Times reported late on Sunday. The idea would probably work out better for Misra and his boss, Masayoshi Son, than it would for possible sponsors such as Abu Dhabi and Kazakhstan’s state funds.

Misra and his Vision Fund colleague Akshay Naheta could use a hedge fund-style vehicle to make complex bets on public equities, similar to a transaction last year that involved the convertible bonds of embattled 17 billion euro payments group Wirecard, the FT reported. At first glance, the idea seems to jar with Son and Misra’s fixation on young startups like Uber Technologies, Slack Technologies and ByteDance and with SoftBank’s stated corporate philosophy: “Information Revolution—Happiness for everyone”.

But such a vehicle could still focus on listed tech groups. And financial engineering is clearly one of the Vision Fund’s selling points. The fund’s staff roster is packed with former bankers, including from Misra’s old employer Deutsche Bank. And between 2017 and early 2019, the fund more than quadrupled its money on listed chipmaker Nvidia, helped by the use of derivatives that protected the firm from a 2018 selloff.

Crucially, Misra and Son are struggling to secure outside commitments for a second Vision Fund. So if Misra’s new vehicle might attract Abu Dhabi and Kazakhstan’s state funds, why not make the most of their interest? The venture could in theory allow SoftBank to keep earning profits even if the Vision Fund’s existing stable of pricey startups turned out to be overvalued. And if the new fund were to flop, it would be someone else’s money.

The idea makes less sense, however, for potential backers. Funds that want exposure to long-only listed technology bets can find less expensive and less risky ways to do that. Misra and his colleagues have a limited track record of investing in public equities, and aggressive financial structuring could amplify losses if things turn sour. But such risks didn’t deter investors from backing the first Vision Fund. They may not prevent money flowing into Misra’s potential new punt.


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