Big beast: The SoftBank Vision Fund

With just two announcements, six months apart, Saudi Arabia’s Public Investment Fund (PIF) has become the largest-ever investor in private equity funds. First, it committed up to $45 million in SoftBank Group Corp’s bumper global technology fund, which has raised $93 billion and is looking to reach $100 billion. Second, it agreed to invest $20 billion in a permanent capital vehicle launched by The Blackstone Group that is targeting $40 billion for US infrastructure deals.

These actions place PIF in a LP category all of its own. The funds it is backing are also significant enough to redraw the private equity investment opportunity in certain industries, if not to redraw the industries themselves. Are they competing with other vehicles, or simply floating above them, pursuing macro agendas that indirectly alter the fortunes of those operating below?

The SoftBank Vision Fund is the most striking addition to the alternative investment sphere. Silver Lake broke its own record earlier this year for the largest technology fund ever raised, closing its fifth vehicle at $15 billion. SoftBank will have nearly seven times as much dry powder.

The Japanese conglomerate will contribute $28 billion to the fund, although part of this will be in the form of a 24.99% stake in ARM Holdings, which was bought last year for $32 billion. Positions in other portfolio companies could also end up in the fund, including: OneWeb ($13 billion merger with Intelsat announced in February, SoftBank to hold 39.9% stake); Guardant Health (SoftBank led a $360 million round earlier this month); and SoFi (SoftBank invested $1 billion in 2015 and is ready to commit more); and Nvidia (not previously disclosed as a SoftBank investment).

About a dozen deals have reportedly been lined up, with the fund set to absorb anything in SoftBank’s pipeline above $100 million, with the exception of the various ride-hailing businesses. This enables SoftBank to shift a portion of its balance sheet exposure into a third-party vehicle, make even bolder technology bets while sharing the risks and rewards with other investors, and relieve some of the pressure caused by fluctuations in its stock price.

The company signaled its ambitions to become an asset manager in February when it agreed to buy US-based Fortress Investment Group for $3.3 billion. Masayoshi Son, SoftBank’s chairman and CEO, has described the Fortress acquisition and the Vision Fund platform as being part of the “SoftBank 2.0” transformation strategy, which appears to be based on accumulating patient capital from multiple sources to invest in long-term technology trends across different markets.

It is unclear what this means for existing investors in the sector, beyond an increase in competition, both real and rumored. Whenever a company prepares to raise a large, late-stage round of funding or a technology asset is put up for auction, there will inevitably be chatter about potential participation by the Vision Fund. SoftBank’s willingness to write big checks was underlined earlier this month when it emerged the firm contributed $5 billion out of a $5.5 billion round raised by China-based ride-hailing player Didi Chuxing – and that isn’t even a target for the fund

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• Topics
• North Asia
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• TMT