Confusion lingers over Softbank’s investment in Vision Fund

Since SoftBank’s billionaire founder Masayoshi Son announced the US$100 billion (RM445 billion) SoftBank Vision Fund to make technology investments, there has been confusion over its purpose and methods.

A Financial Times report last week about SoftBank selling the fund a 25 per cent stake in United Kingdom chipmaker ARM Holdings won’t help.

Of many questions surrounding the Vision Fund, which still has not officially closed, there’s a crucial one: where does SoftBank Corp end and Vision begin?

It’s an important point that Son hasn’t answered yet. SoftBank has said only that it expects to invest at least US$25 billion in the entity over the next five years, and that it will be joined by a US$45 billion contribution from the Public Investment Fund of the Kingdom of Saudi Arabia, and others.

But the acquisitions made (or proposed) to date for United States asset manager Fortress and satellite companies OneWeb and Intelsat SA have been done by SoftBank, not the fund.

Some of the assets may later be offered to the fund, as is happening with the ARM stake.

If you’re confused, that’s okay. It’s confusing. It’s also questionable governance, signalling potential risks not just for other investors in Vision but for SoftBank shareholders too.

The ARM stake sale is a case in point. SoftBank is selling it to the fund for US$8 billion, which corresponds roughly to the same valuation it bought it for back in July, said the FT report.

Supposedly this is happening to help Vision secure a US$15 billion commitment from Abu Dhabi’s Mubadala.

If true, it implies one investor may be able to dictate investment decisions for the whole fund, opening up a Pandora’s box of complications.

From the point of view of SoftBank shareholders, they’re handing over a chunk of a strong company that the Japanese group paid a 43 per cent premium to buy, potentially giving away some upside.

From the fund’s side, it gets an ARM stake without much influence. Yet the holding could account for as much as 10 per cent of the Vision assets.

The bullish argument is that the fund gets to enjoy the benefits of ARM’s synergies with SoftBank. And, in fairness, ARM is a prize asset. Vision Fund investors would probably worry more about how it’s going to spend the rest of the US$100 billion.

That said, Son’s ARM bet is no sure thing. It depends on the British chip designer becoming a force in the so-called Internet of Things. Should ARM’s earnings turn south, or SoftBank be forced into a sale to cover debts or losses elsewhere, the Vision Fund will take the hit.

This all shows that checks and balances are needed between the company and the fund. Perhaps these will become more apparent once the Vision Fund closes.

SoftBank shareholders should demand clarity. They may end up gaining from Son’s canny idea to use the fund as a way to turbocharge his investments

He certainly wouldn’t be able to do what he wants to do out of SoftBank’s money since it carries US$128 billion in debt. But they could also be hurt if the fund’s investments fail to generate returns or distract Son from his other operations.

It’s not enough for Son to rest upon his reputation as a tech visionary to be given a massive pot of money to invest, with no strings attached and a blurry relationship with his company.

Son believes in a few decades we’ll all be living in a world powered by AI and robots. He’s probably right, but he still may burn a lot of other people’s money along the way.