In­vestors left spooked by fund’s sur­prise switch in tac­tics, write Matthew Field and Hasan Chowd­hury

The Daily Telegraph - Business - - Front Page -

It’s among the world’s big­gest and most con­tro­ver­sial tech­nol­ogy in­vestors, renowned for mak­ing huge bets on young, pri­vately held com­pa­nies. Some­times – most fa­mously in the case of WeWork – th­ese have back­fired spec­tac­u­larly. Now SoftBank, the Ja­panese con­glom­er­ate founded by bil­lion­aire Masayoshi Son (right), is be­ing blamed for some­thing else: tak­ing colos­sal punts on shares in pub­licly traded tech com­pa­nies, which have fu­elled ex­treme mar­ket vo­latil­ity.

Un­til re­cently, a pan­demic-de­fy­ing surge in tech­nol­ogy stocks this year has been pinned on re­tail in­vestors and other spec­u­la­tors pil­ing into the likes of Ap­ple, Tesla and Ama­zon.

Last Fri­day, it emerged that SoftBank had snapped up $4bn (£3bn) in call op­tions – agree­ments to buy a stock when it hits a cer­tain price – help­ing drive the mar­ket up.

SoftBank, which was quickly chris­tened the “Nas­daq Whale”, is un­der fresh scru­tiny this week over its high-risk in­vest­ment style, as well as its links to a clique of ex-Deutsche Bank in­vest­ment bankers who wield great in­flu­ence within the busi­ness.

“I’ve never re­ally been a fan of their strat­egy,” says Richard Windsor, an in­de­pen­dent an­a­lyst at Ra­dio Free Mo­bile

“But you have to take your hat off to Masa. He has nerves of steel.”

While the gains ul­ti­mately fell back last week, SoftBank is said to be sit­ting on $4bn in prof­its, ac­cord­ing to the Fi­nan­cial Times which first re­ported the bets.

This sort of in­vest­ing be­hav­iour is not en­tirely new for SoftBank. What was once a tele­coms com­pany now in­creas­ingly re­sem­bles a ven­ture cap­i­tal fund or a highly lev­er­aged hedge fund.

Many in­vest­ments can be traced to its deal mak­ers across Lon­don and Asia clus­tered around Ra­jeev Misra, a for­mer Deutsche vet­eran trader who sits on the Softbank Group board.

He also serves as chief ex­ec­u­tive of SoftBank In­vest­ment Ad­vis­ers which over­sees the firm’s Vi­sion Fund – a vast in­vest­ment ve­hi­cle cre­ated with money from the sov­er­eign wealth funds of Saudi Ara­bia and Abu Dhabi. Its lat­est plan is SoftBank’s new

“in­vest­ment man­age­ment sub­sidiary”. This ve­hi­cle, which is two thirds owned by SoftBank and one third by Masayoshi Son him­self, was set up over the sum­mer to in­vest in “highly liq­uid pub­lic listed stocks”.

It is far re­moved from SoftBank’s pre­vi­ous lofty aims of a “300 year vi­sion” to in­vest in small, fast­grow­ing start-ups.

While Son is re­ported to be closely in­volved in this new phase of stock pick­ing, set­ting up the new fund is also said to have in­volved deal mak­ers from the SoftBank Vi­sion Fund.

Based at its head­quar­ters in a plush May­fair town house, Misra, who spent 12 years at Deutsche un­til 2008, is re­ported to have helped set it up.

An­other in­vest­ment man­ager whose star has been ris­ing is 39-yearold Ak­shay Na­heta.

Na­heta joined the Vi­sion Fund in 2017 and was the brains be­hind a $1bn trade in Wire­card, the fallen Ger­man pay­ments busi­ness left bro­ken by a fraud scan­dal.

SoftBank was left un­blem­ished by the fall­out at Wire­card, as it had ef­fec­tively funded the in­vest­ment with­out its money.

Un­til 2011 Na­heta was a pro­pri­etary trader at Deutsche, be­fore set­ting up his own firm fo­cused on “ar­bi­trage and value in­vest­ing”. Na­heta re­cently moved from the Vi­sion Fund to join SoftBank Group to fo­cus on in­vest­ments, ac­cord­ing to his LinkedIn.

They are not the only glit­terati of the City who are work­ing with SoftBank’s bil­lions. They in­clude Colin Fan, for­mer head of Deutsche’s trad­ing busi­ness, Mu­n­ish Varma, a for­mer trader and Ioan­nis “John” Pip­ilis, for­mer global head of fixed in­come.

A sep­a­rate firm, Cen­tri­cus, founded by ex-Deutsche bankers, was also in­volved in fundrais­ing for SoftBank’s $100bn Vi­sion Fund. “There is a lot of over­lap and ca­ma­raderie be­tween them,” says one source.

The last two decades of the Ger­man bank’s his­tory shed some light on how SoftBank has be­come a home for high-oc­tane deal mak­ing. Head­quar­tered in its glis­ten­ing twin tow­ers in Frank­furt, the 150-year-old bank was known for build­ing one of Europe’s big­gest in­vest­ment bank­ing teams in the City and the US at the ex­pense of its re­tail bank­ing arm.

A 2004 Econ­o­mist head­line dubbed it “a giant hedge fund”. It be­came known as a ma­jor pur­veyor of col­lat­er­alised debt in the run up to the fi­nan­cial cri­sis. In the af­ter­math, its in­vest­ment team has been in de­cline and the bank has un­der­gone mul­ti­ple re­struc­tur­ings. A num­ber of its big­gest deal mak­ers have since jumped ship and many alumni have ended up with SoftBank.

While the huge bet on tech­nol­ogy stocks ap­pears to have paid off for Son, it has spooked in­vestors.

SoftBank used a fi­nan­cial tool called a “call op­tion”.

It used $4bn to make down pay­ments on $30bn worth of shares to buy them at an agreed price, ef­fec­tively a down pay­ment.

Since the stocks surged above the agreed prices, it will be able to take that as a profit.

Neil Cam­pling, an­a­lyst at eq­uity re­search firm Mirabaud Se­cu­ri­ties, claims that although the strat­egy may have brought short-term fi­nan­cial gains, it will have thrown in­vestors who had felt SoftBank was go­ing in a dif­fer­ent di­rec­tion.

SoftBank shares fell more than 7pc yes­ter­day, wip­ing around $9bn off its value. In an earn­ings brief­ing in Au­gust, Son had given no sig­nal of in­tent to pur­sue an “ag­gres­sive strat­egy more suited to a hedge fund”, Cam­pling notes, in­stead an­nounc­ing the move into as­set man­age­ment as a means of di­ver­si­fy­ing the firm’s hold­ings and in man­age­ment of ex­cess cash.

“The Au­gust con­fer­ence call even went as far as to call ‘de­fen­sive pos­ture’ and more pru­dent as­set man­age­ment as the new SoftBank Busi­ness themes.

“There wasn’t any­thing about this strat­egy that ap­pears de­fen­sive or pru­dent,” Cam­pling says.

Chris Beauchamp, chief mar­ket an­a­lyst at IG, a trad­ing ser­vice, sees the cur­rent push as an op­por­tu­nity to make quick re­turns in the midst of a mar­ket rally that has seen tech stocks soar, help­ing cover ground for losses in­curred from failed bets over the last year.

“You’ve got this in­flux of peo­ple who are more known for this hedge fund strat­egy than a long slow in­vest­ment case,” he says.

“It’s a per­fectly valid strat­egy if you know how to ex­e­cute it and, of course, they do know what they’re do­ing. But it does al­ways pose a risk be­cause it can back­fire.”

‘There wasn’t any­thing about this strat­egy that ap­pears to be de­fen­sive or pru­dent’

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