Tech sector troubles hit Vision Fund performance

The Vision Fund series – underpinned by a debut fund of USD 98.6bn raised largely from external investors and a USD 56bn successor vehicle entirely drawn from SoftBank’s balance sheet – recorded a loss of JPY 2.94trn (USD 21.7bn) for the three months ended June or the first quarter of the financial year. This followed a record loss of JPY 2.99trn in the previous quarter.

SoftBank’s Group level loss, accentuated by a decline in the yen, came to JPY 3.16trn, according to an earnings presentation. This compared to JPY 2.1trn for January-March and a marginal profit in the three months before that.

Son announced plans to cut costs, which include the potential divestment of Fortress Investment Group and a substantial reduction in operational costs for the Vision Fund series. “We have a vision, and the vision remains the same. But if we pursue the vision recklessly, we may end up losing big,” he told analysts on an earnings call.

Moreover, there are no plans to treat the current conditions as a buying opportunity and take advantage of depressed valuations. Son promised that the Vision Funds would be highly selective on new investments while focusing on enhancing the value of the existing portfolio.

The performance of the Vision Funds – known for making large late-stage bets on technology start-ups – has swung from highs to lows in accordance with overall sentiment on technology. Twelve months prior to the record fourth-quarter loss, the funds posted a record quarterly gain of JPY 3.66trn. The cumulative gain now stands at JPY 112.1bn, down from JPY 7.1trn in early 2021.

Vision Fund 2 is the principal drag on performance. It was marked at a loss of JPY 1.34trn at the end of the first quarter, while Fund I was up JPY 1.52trn. This was driven by significant losses on publicly listed companies such as China-based Full Truck Alliance, Zhangmen, Dingdong, and JD Logistics.

With Fund II, there has been a shift in strategy to smaller, earlier-stage investments. Son explained the transition using a baseball analogy.

Fund I took big swings at the likes of Uber, Didi, and WeWork, in some cases writing equity cheques of JPY 1trn, but “couldn’t hit the ball.” With Fund II, he said, “rather than aiming for the home run, we try to aim for a first base hit or a second base hit.” He added that he personally attempted to become less emotionally involved in investments, relying more on regional and sector experts.

Continuing the analogy, Son explained that Fund II was making smaller swings, but lots of them, with JPY 5trn deployed across a string of deals in the first nine months of the 2021 financial year, often at elevated valuations. There were “too many swings” and this contributed to a “large variation loss.”

As of June, Fund I had made cumulative deployments of USD 87.7bn and had a total fair value of USD 108.1bn plus distributions of USD 42.4bn, a separate presentation showed. For Fund II, deployment was USD 49.1bn and total fair value and distributions were USD 39.8bn and USD 9.1bn, respectively.

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• Topics
• North Asia
• Technology
• Performance
• GPs
• Softbank
• Japan
• TMT