SoftBank’s $100 Billion Investment Fund Starts to Take Shape

Landon Thomas Jr.
Softbank CEO Masayoshi Son speaks to the press after meeting with U.S. President-elect Donald Trump at Trump Tower in Manhattan, New York City, U.S., December 6, 2016.
Brendan McDermid | Reuters

Many business titans have made the trek to Trump Tower for a private audience with Donald J. Trump since he was elected president, but none have made a bigger splash than Masayoshi Son, the billionaire telecommunications entrepreneur.

"Ladies and gentlemen, this is Masa of SoftBank of Japan and he has just agreed to invest $50 billion in the U.S. and 50,000 jobs," Mr. Trump said, wrapping an arm around the beaming Mr. Son last month.

That pledge suggested a wave of money pouring into technology start-ups in Silicon Valley. And it is part of a hugely ambitious $100 billion investment fund — the SoftBank Vision Fund — that Mr. Son announced in October.

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Yet bankers who are advising the SoftBank fund say that more than three-quarters of the fund's resources will be directed toward larger investments in private and public markets, rather than into start-ups.

That could mean swooping in to grab a piece of an undervalued technology company trading on the stock exchange or doing a large-scale private equity deal.

That's because investing in technology start-ups is usually constrained by the sector's ability to absorb large sums, with $1 billion generally considered the very upper limit. In the parlance of finance, money does not scale.

These bankers say that the fund — which has $45 billion from Saudi Arabia, $25 billion from SoftBank and smaller contributions from Apple, Lawrence Ellison of Oracle and others — will also be looking at smaller venture capital forays in artificial intelligence, robotics and financial technology. But given the fund's size, the major bets will be on large companies.

As the fund approaches its official start date later this month, a team of portfolio managers have emerged to get the investment process started. While Mr. Son will have the ultimate say, a small group of Deutsche Bank refugees — led by Rajeev Misra, one of Anshu Jain's most trusted (and unsung) deputies in the bank's glory years before the financial crisis — will take on a major role in putting this vast sum of money to work.

Mr. Misra was part of a small group of derivatives specialists who left Merrill Lynch in the mid-1990s to create Deutsche Bank's powerful global markets division. He was in many ways the founding father of the Deutsche Bank's headlong — and ultimately contentious — dive into the structuring and selling of exotic investments like credit derivatives and securitized mortgages.

To a degree, there is a bit of a start-up feel to the fund's investment team. With just weeks to go before the fund can start investing, the Deutsche Bank veterans — who will be supported by SoftBank analysts in San Francisco and Tokyo — are still settling into their new offices in London's exclusive Mayfair district.

The team has already received a deluge of résumés, investor pitches and queries from bankers and lawyers — all looking to get a piece of the largest fund start in recent memory.

Mr. Misra will be joined by Akshay Naheta, a former proprietary trader at Deutsche Bank and founder of Knight Assets, an activist investment firm based in London; and Saleh Romeih, another senior banker from Deutsche Bank.

Working with Mr. Misra and his team will be a group of senior SoftBank deal makers who, over the years, have worked closely with Mr. Son as he has built up his portfolio of investments. They include Alok Sama, chief financial officer for SoftBank International; Ronald Fisher, a board member who has been deeply involved with SoftBank's Sprint stake; and Deep Nishar, a former top executive at Linkedin.

Mr. Son, Mr. Misra and Mr. Fisher will be the key members of the investment committee. Bankers expect that the total investment staff will include about 100 people.

From the outset, growth has been the common theme in regard to investment strategy.

That means that when the SoftBank fund takes a company private, it will not be slashing thousands of jobs to claim efficiencies or to meet interest payments on the loans that backed the deal.

Instead, buyouts will be largely cash, thus helping Mr. Son keep true to his vision — to say nothing of his promise to the president-elect — that SoftBank's investments will create thousands of jobs.

For example, when SoftBank bought the British company ARM Holdings, which designs chips used in smartphones, for $32 billion last year, Mr. Son promised to double the number of company engineers.

And because the fund will not have to pay back investors for 12 years, it will be able to take a longer-term approach — for its private investments as well at its bets in the stock market, which are expected to follow an activist strategy.

It is this combination of growth and adherence to the long view that has made Mr. Son, in effect, the Warren E. Buffett of technology investing.

Said to be worth $17 billion, Mr. Son made his first entrepreneurial score (an electronic dictionary that he sold to Sharp Electronics) as a college student at the University of California, Berkeley in the 1970s. He returned to Japan in the 1980s and transformed SoftBank from a software distributor to a technology and telecommunications giant.

Mr. Son would later found Yahoo Japan and take a large and early stake in Alibaba, the Chinese e-commerce behemoth. Through his holding company, he now controls large swaths of the telecommunications market in the United States and Japan.

At a time in finance when the real measure of a leader has become the ability to attract large sums of money in a short period of time, Mr. Son's achievement is extraordinary.

But the task of deploying such an amount will be a challenge.

Which is where Mr. Misra comes in.

As the head of Deutsche Bank's global credit trading during a time when SoftBank was hitting the market for loans, Mr. Misra came to know Mr. Son as a client.

In mid 2008, Mr. Misra — who was also the ultimate boss of Greg Lippmann, the trader whose bets against the United States housing market became the subject of the book and movie, "The Big Short" — left the bank.

After stints at UBS and the Fortress Investment Group, the Indian-born Mr. Misra accepted an offer in 2014 from Mr. Son to bring his financial engineering skills to SoftBank.

It was Mr. Misra, in fact, who came up with idea of having Sprint, SoftBank's debt-burdened wireless provider, reduce its punitive finance costs by issuing cheaper bonds that were secured by the company's access to spectrum airwaves.

Sprint was able to issue more than $3 billion worth of these bonds, which, because they were secured, carried a much lower interest rate than the double-digit rates that the company had paid in the past.

With a five-year deadline to invest the funds, Mr. Misra and his team of bankers will not be forced to chase every tech tip, or to jump desperately into the next investor round for an Uber, Airbnb or the hot online security play of the moment.

Mr. Misra's team will take a broad view of technology, bankers say, focusing on how lightning-speed innovation is disrupting industries like media, telecommunications, health care and asset management.

"He is superbly talented," Boaz Weinstein, a hedge fund executive who worked for Mr. Misra at Deutsche Bank, said of Mr. Misra's ability to reinvent himself on Wall Street. "First it was credit derivatives and now it is technology. Those kinds of second acts are rare."