Japanese fund fails to deliver for Gulf investors

• SoftBank Vision Fund’s falters
• PIF and Mubadala invested $60bn
• Fund worth less than investment

Eight years ago next week Saudi Arabia became a founding investor in SoftBank’s Vision Fund, pledging $45 billion, and Abu Dhabi soon committed another $15 billion.

The creator of the private equity fund, the world’s largest, was Japanese tech guru Masayoshi Son, who, at the time, predicted it would “accelerate the information revolution”.

In October 2016 Japan’s SoftBank announced the launch of the fund along with the involvement of Saudi Arabia’s Public Investment Fund (PIF).

Yet, nearly a decade later, Gulf investors have little to show for their outlays.

SoftBank predicted the fund could eventually expand to $100 billion, which would be approximately the same amount as all US Venture Capital firms had raised in the previous two-and-a-half years, a University of Pennsylvania report states.

PIF and Mubadala receive a 7 percent dividend on invested capital plus a percentage of any returns, the report explains.

The duo did not respond to requests for comment.

Contrary to its name, SoftBank is not a bank but a telecom and information technology investor. Son – widely known as Masa – launched the company in 1981.

SoftBank is also a Vision Fund investor and both entities often co-invest in the same companies, which has led to questions about conflict of interest.

Overall, SoftBank’s Vision Fund has generated a negative return for investors since its inception in 2016, says Atul Goyal, managing director of equity research at Jefferies & Co in Singapore.

Typically, investors in such a fund would expect a 20 percent compound annual return, so $100 invested at inception would be worth about $440 after eight years. Yet the Vision Fund is worth less than what investors committed.

“You can’t catch up for that lost period,” says Goyal. “Is there a potential for some returns in future? Of course, but the probability isn’t high given the fund’s investment track record. It invested when company valuations were steep and rising and stopped investing when valuations corrected dramatically.”

PIF did not put new money into SoftBank’s Vision Fund 2, instead only reinvesting profits from the first iteration, according to media reports.

When asked if the PIF and Mubadala were likely to be content with their vision fund investment, Goyal says: “If they were happy, they would've invested more. They were asked multiple times but haven't invested again.”

Zhong Yang/Oriental Images via Reuters Connect

SoftBank’s results groups the vision funds together. These made an investment loss of $1.2 billion in the 2023 financial year to March 31, 2024. That compares with investment losses of $36.9 billion and $25.1 billion in the preceding two financial years, AGBI calculates based on SoftBank’s earnings.

As of June 30 Vision Fund 1 had made 64 investments and Vision Fund 2 had made 271 investments. Some holdings in publicly listed businesses are now worth far less than their peak value.

Chinese rideshare company Didi’s market capitalisation was $20 billion as of June 30, down from a peak of $79.1 billion. SoftBank owns 20 percent of Didi and has made a paper loss of $8.1 billion on the company.

It has also made a $1.2 billion paper loss on AutoStore and its stake in South Asian “superapp” Grab is worth $300 million less than the fund paid. Conversely, it has an unrealised gain of $5.6 billion on Korean courier Coupang.

• The huge ambitions of PIF come at vast expense
• SoftBank slump not a ‘total disaster’ for Gulf wealth funds
• PIF says assets hit $594bn despite $16bn loss in 2022

“SoftBank has some of the most strategic tech plays in the private markets and has been a key foundation for the AI revolution,” says Daniel Ives, managing director of New York’s Wedbush Securities. “We believe this AI revolution will create many opportunities on the private and public tech front with SoftBank a key player.”

Yet Goyal is unconvinced by that argument.

“SoftBank has talked up the funds’ investments in AI, but that’s not reflected in its portfolio,” says Goyal.

SoftBank and the Vision Fund were the biggest shareholders in office leasing company WeWork. PIF and Mubadala prevented SoftBank’s Son from increasing the fund’s stake in WeWork after his efforts to float the company at a valuation of about $50 billion floundered, explains Goyal.

“PIF and Mubadala have sway on the major decisions but don’t get involved with day-to-day investments,” says Goyal.

WeWork’s bankruptcy plan values it at about $750 million, Reuters reported. SoftBank and the Vision Fund invested $13 billion in WeWork and lent it $5 billion, the university report states.

That PIF and Mubadala bet so big on Masa seems surprising considering his mixed investment record.

He made huge profits from Yahoo Japan but “in 2000, he had about 300 investments and 299 went to zero,” says Goyal.

“The one that didn’t was Alibaba, which salvaged him,” he says.

“In the last 10-20 years very few of his investments have succeeded as Alibaba or Yahoo did.

“Having the vision of what will work is one thing, but then implementing that in terms of value creation by picking up the right management teams, understanding the right business models boils down to stock picking.

“While Masa’s vision about industries and where technology is going has been better than others, his ability in terms of stock picking hasn't been.”