FEARS OVER SOFTBANK’S HIGH RISK TECH BETS
Investors left spooked by fund’s surprise switch in tactics, write Matthew Field and Hasan Chowdhury
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’