SoftBank’s second Vision Fund to invest in major technology firms

SoftBank Group Corporation announced on Friday a second Vision Fund aimed at investing in technology firms, saying it has secured pledges totalling about $108 billion from companies including Microsoft and Apple.

The Japanese conglomerate itself plans to invest $38 billion in the fund, it said in a statement. Others set to join include Apple and Taiwan’s Hon Hai Precision Industry Co (Foxconn) - both investors in the first fund.

The second fund’s investor base reflects diversification beyond the Middle East that provided most of the first $100 billion fund’s outside capital as SoftBank touts industry-beating returns, with joiners including cash rich Japanese financial institutions and a Kazakh sovereign wealth fund.

“Those investing two years ago were investing in the vision, there was no proof the concept was going to succeed,” said Sanford C. Bernstein analyst Chris Lane.

“Given the track record achieved over the last two years Vision Fund 2 has been substantially de-risked,” Lane said.

SoftBank in May said the first fund had generated a 45% internal rate of return for investors in its common shares, or 29% when debt-like preferred shares are included - though the gains still exist mostly on paper.

On Friday, it said other participants in the second fund will include the National Investment Corporation of National Bank of Kazakhstan, Standard Chartered Bank, undisclosed parties from Taiwan and the fund’s own managers.

The new fund has broad backing from Japan’s financial industry including units of the three mega banks, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group, SoftBank’s statement showed.

It said Daiwa Securities Group, Dai-ichi Life Holdings and Sumitomo Mitsui Trust Holdings Inc have also signed memoranda of understanding (MOU).

“The objective of the fund is to facilitate the continued acceleration of the AI revolution through investment in market-leading, tech-enabled growth companies,” SoftBank said in its statement.

Founder and Chief Executive Masayoshi Son uses artificial intelligence (AI) as a catch-all term to characterise SoftBank’s investment portfolio, which features businesses as varied as ride-hailing and autonomous driving, insurance and healthcare. SoftBank has not provided concrete details on the kind of investments it is targeting, said a senior executive at one Japanese bank listed as a participant in the new fund.

“The fund itself is of course attractive, but what matters is the overall balance of the portfolio,” the banker said, declining to be identified further.

The first Vision has already burned through much of its capital with investments in over 80 late-stage tech startups.

Bets included Uber Technologies and WeWork parent The We Company in a spending spree that has reshaped the venture capital industry as SoftBank outguns less-capitalised rivals.

“We’ve seen several startups start to beat their rivals and push them out of the market, mainly because — and only after — they receive investment and backing from SoftBank,” said one Hong Kong-based senior investor at a large venture capital firm.

SoftBank did not provide details on how it would fund its $38 billion contribution to the new fund. With the conglomerate not needing to put up all the money at once, proceeds from the first Vision Fund can potentially be recycled, said analyst Dan Baker at Morningstar.

Such a strategy would rely on the first fund continuing to provide blistering returns, as it transitions beyond identifying and investing in promising startups to managing a portfolio of companies that are listed or heading toward public markets.

Absent from SoftBank’s list of participants in the new fund was Goldman Sachs Group. The Wall Street Journal on Wednesday reported the US bank would invest in the fund.

SoftBank said it was still talking to potential investors and that it expected the fund’s anticipated capital to grow.

SoftBank Group’s share price was little changed in morning Tokyo trade following the widely anticipated announcement. The benchmark share price index was down 0.5%.

Meanwhile, Japan’s Nikkei lost traction on Friday on downbeat earnings both at home and on Wall Street, erasing some of the previous day’s advance which had pushed the benchmark to a 2-1/2-month peak.

The Nikkei share average ended the day down 0.45% at 21,658.15. The index had risen to 21,823.07 the previous day, its highest since May 7.

Technology companies, which had given a big boost to the broader market over the past week, slid as their US peers fell overnight after a strong rally. Industrial robot maker Fanuc Corporation fell 1.6% and Tokyo Electron lost 1.4%.

Reuters