SoftBank set to invade Wall Street

The private equity industry has long been dominated by the Wall Street elite: firms like the Blackstone Group, Kohlberg Kravis Roberts and Carlyle.

Now SoftBank, a Japanese conglomerate best known in the United States for its ownership of Sprint, is looking to muscle in on this lucrative business. Under Masayoshi Son, the founder who still leads it, SoftBank has been a relentless deal maker for decades, shaking up industries and most recently unleashing a $100 billion investment fund focused on technology.

Despite Son’s reputation — he is sometimes compared to Warren E. Buffett — the Wall Street establishment was skeptical when SoftBank last year made its first big private-equity play, buying Fortress Investment, a midsize asset manager.

Why would a man eyeing the far frontiers of technology buy a firm that invests in mortgage servicing, subprime lending and dubious Italian loans? The $3.3 billion deal for Fortress also represented a rich 38 per cent premium to the company’s flagging stock price.

With his technology fund and Fortress under one roof, Son concluded SoftBank could create an asset management firm capable of siphoning business from heavyweights.

With their rich fees and locks on client cash for as much as 10 years, so-called alternative investments — investing in private equity, hedge funds and distressed debt — are the fastest-growing segment of the fund industry.

Though not yet formally established, the plan is for the new firm to be called SoftBank Financial Services. Fortress and the Vision Fund would be the main cogs, but they would exist as separate entities.

Rajeev Misra, a top Wall Street financial engineer who now heads the Vision Fund, will take charge of the larger company, to be based in London.

He is an unusual choice to head a large asset management firm. During a 12-year career at Deutsche Bank, Misra oversaw the creation and distribution of the complex mortgage securities that were at the heart of the financial crisis in 2008.

Nor does he have substantial experience in private equity or venture capital. But his expertise in devising complex financing solutions appealed to Son, one of the larger players in global debt markets. Son was also a client of Misra’s at Deutsche Bank.

Misra, who is 56, was among a wave of Indians whose intellect — he has degrees in computer science and mechanical engineering — and ambition propelled them to the top of Wall Street (he is a childhood friend of Anshu Jain, the former Deutsche Bank chief). His raspy voice and occasional coughing fits betray a decades-long chain-smoking habit that he has not yet kicked.

“Right now we are close to $140 billion,” he said in a recent interview, counting the combined assets of the Vision Fund and Fortress. “If we perform well, we would hope to be two times that number in the next five years.” SoftBank is already challenging Kohlberg Kravis Roberts, which oversees $168 billion.

But size isn’t all that matters. Industry experts argue the SoftBank method — raising gobs of money and building a firm around it — is rare. Outfits like Blackstone, K.K.R. and Carlyle evolved, and became institutionalised, over decades through the persistent energies of their respective founders, Stephen A Schwarzman, Henry Kravis and David Rubenstein.

Rajeev Misra, who heads Vision Fund, will take charge of the larger firm, to be based in London