In a room full of princes and serious global power players, those two stood out.
It was May 2017 in Riyadh, and the inaugural Saudi-US CEO Forum at the Four Seasons hotel. I was there, in my previous working life, lucky enough to munch on the five-star food with the other gophers on the periphery, whilst the men and women of destiny strolled about.
BlackRock’s Larry Fink, US commerce secretary Wilbur Ross and then secretary of state Rex Tillerson were amongst the illustrious guests, as businesses flocked to Saudi Arabia at the invitation of Mohammed bin Salman. Donald Trump was also in Riyadh, albeit not at this forum, and you may remember the highlight of his visit was that strange photo op when he held a shining orb with King Salman and President Sisi of Egypt.
But the two stars of the day were Masayoshi Son, CEO of Japanese conglomerate SoftBank, and Rajeev Misra, the man overseeing SoftBank’s $100bn Vision Fund. The fund, the largest ever of its kind, had just secured $45bn backing from Saudi Arabia’s Public Investment Fund, as it ploughed record amounts of cash into technology firms. Uber, WeWork, Arm – the list remains impressive in size and scope.
In 2020, to say that things haven’t quite panned out as people thought is being charitable. The problems became evident with WeWork’s aborted IPO last year, adding to mounting concerns, including from Masa’s Saudi partners, that the fund was overpaying for its stakes. The long and the short of it – SoftBank reported a record operating loss of $17.7bn for fiscal year 2019-20, with those losses driven by the Vision Fund.
Masa and Misra remained bullish, noting that their average investment span was 14 years. Plenty of time to iron things out, despite investor nerves. Nevertheless, a soft reboot was needed, and this week we saw it what it looks like.
As first reported by the FT, SoftBank has been driving aggressive bets on equity derivatives in the US, focusing on tech stocks and helping move them to record highs last week. It netted the company trading gains of around $4bn, with Masa’s actions taking on a notional exposure of about $30bn. He has hedged in some areas to protect these bets, but the strategy is a significant risk, especially as markets are contracting now the secret is out.
Some feel that this isn’t a strategy at all, and are deeply unimpressed by the revelation that SoftBank is the ‘Nasdaq Whale’. One unnamed source told the FT this was all little more than “a levered punt on the market…just momentum buying”. The paper’s editorial board noted that “far from acting like a visionary technology investor, the group is behaving like a hedge fund”.
There is certainly an argument for institutional investors to move away from a crowded private market and help make public markets more welcoming for start-ups, although this doesn’t entail placing huge bets that artificially drive up said market’s value.
Maybe SoftBank hoped that the midst of a pandemic was a good time to fly this shift under the radar. The unnerved response from investors suggests otherwise, as the company’s market value fell by $9bn on Monday, with a further, smaller fall yesterdayand a significant plunge of seven per cent earlier this morning, taking more than $15bn off its total valuation. The aforementioned tech stocks are also currently being routed (see today’s ‘Markets’ section).
For Masa and the company he founded almost 40 years ago, this looks like one reboot that won’t reset properly.