SoftBank Group's $108 billion Vision Fund 2 draws in Microsoft, Apple

TOKYO (Reuters) – SoftBank Group Corp (9984.T) announced on Friday a second Vision Fund aimed at investing in technology firms, saying it has secured pledges totaling about $108 billion from companies including Microsoft Corp (MSFT.O).

The Japanese conglomerate itself plans to invest $38 billion in the fund, it said in a statement. Others set to join include Apple Inc (AAPL.O) and Taiwan’s Hon Hai Precision Industry Co Ltd (Foxconn) (2317.TW) – both investors in the first fund.

The second fund’s investor base reflects diversification beyond the Middle East that provided most of the first $100 billion fund’s outside capital as SoftBank touts industry-beating returns, with joiners including cash rich Japanese financial institutions and a Kazakh sovereign wealth fund.

“Those investing two years ago were investing in the vision, there was no proof the concept was going to succeed,” said Sanford C. Bernstein analyst Chris Lane.

“Given the track record achieved over the last two years Vision Fund 2 has been substantially de-risked,” Lane said.

SoftBank in May said the first fund had generated a 45% internal rate of return for investors in its common shares, or 29% when debt-like preferred shares are included – though the gains still exist mostly on paper.

On Friday, it said other participants in the second fund will include the National Investment Corporation of National Bank of Kazakhstan, Standard Chartered Bank PLC (STAN.L), undisclosed parties from Taiwan and the fund’s own managers.

The new fund has broad backing from Japan’s financial industry including units of the three mega banks, Mitsubishi UFJ Financial Group Inc (8306.T), Sumitomo Mitsui Financial Group Inc (8316.T) and Mizuho Financial Group Inc (8411.T), SoftBank’s statement showed.

It said Daiwa Securities Group Inc (8601.T), Dai-ichi Life Holdings Inc (8750.T) and Sumitomo Mitsui Trust Holdings Inc (8309.T) have also signed memoranda of understanding (MOU).

“The objective of the fund is to facilitate the continued acceleration of the AI revolution through investment in market-leading, tech-enabled growth companies,” SoftBank said in its statement.

Founder and Chief Executive Masayoshi Son uses artificial intelligence (AI) as a catch-all term to characterize SoftBank’s investment portfolio, which features businesses as varied as ride-hailing and autonomous driving, insurance and healthcare.

SoftBank has not provided concrete details on the kind of investments it is targeting, said a senior executive at one Japanese bank listed as a participant in the new fund.

“The fund itself is of course attractive, but what matters is the overall balance of the portfolio,” the banker said, declining to be identified further.

LATE-STAGE STARTUPS

The first Vision Fund launched two years ago with $60 billion in backing from the sovereign wealth funds of Saudi Arabia and Abu Dhabi. It has already burned through much of its capital with investments in over 80 late-stage tech startups.

Bets included Uber Technologies Inc (UBER.N) and WeWork parent The We Company in a spending spree that has reshaped the venture capital industry as SoftBank outguns less-capitalized rivals.

“We’ve seen several startups start to beat their rivals and push them out of the market, mainly because – and only after – they receive investment and backing from SoftBank,” said one Hong Kong-based senior investor at a large venture capital firm.

SoftBank did not provide details on how it would fund its $38 billion contribution to the new fund. With the conglomerate not needing to put up all the money at once, proceeds from the first Vision Fund can potentially be recycled, said analyst Dan Baker at Morningstar.

Such a strategy would rely on the first fund continuing to provide blistering returns, as it transitions beyond identifying and investing in promising startups to managing a portfolio of companies that are listed or heading toward public markets.

ABSENTEES

Absent from SoftBank’s list of participants in the new fund was Goldman Sachs Group Inc (GS.N). The Wall Street Journal on Wednesday reported the U.S. bank would invest in the fund.

SoftBank said it was still talking to potential investors and that it expected the fund’s anticipated capital to grow.

Also absent were Abu Dhabi and Saudi Arabia, whose Crown Prince Mohammed bin Salman in October told Bloomberg his country was ready to commit a further $45 billion.

“Without the PIF, there will be no SoftBank Vision Fund,” he said, referring to the Public Investment Fund of Saudi Arabia.

Son was later compelled to defend the kingdom’s backing of the Vision Fund after Saudi security personnel were accused of murdering local journalist and critic Jamal Khashoggi.

SoftBank Group’s share price was little changed in morning Tokyo trade following the widely anticipated announcement. The benchmark share price index .N225 was down 0.5%.