Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

What exactly is the vision for SoftBank Group Corp.'s Vision Fund?

Ostensibly, it's to invest in the world's newest and most exciting technologies. But Masayoshi Son's almost $100 billion fund also houses a growing number of former Deutsche Bank AG traders who spearheaded the lender's push into risky, illiquid derivatives ahead of the 2008 credit crisis.

Their presence begs a question of the Vision Fund, whose backers include Apple Inc. and Saudi Arabia. Is its long-term goal to get into everything from ride-hailing apps to indoor farming, or is it more about getting juicy returns?

One Fund to Rule Them All
SoftBank's $93.2 billion Vision Fund is the world's largest private equity fund
Source: Bloomberg

Colin Fan, the former equity derivatives trader and eventual co-head of Deutsche Bank's investment banking and trading unit, joined SoftBank earlier this year, while Rajeev Misra, who built the German lender's credit derivatives and trading business, is the Japanese company's head of strategic finance and a member of the fund's investment committee.

The two cut their teeth in proprietary trading at the bank, and Misra has been singled out as driving the lender's controversial push into structuring and sales of exotic instruments. They're not alone. Plenty of former Deutsche Bank traders are now part of Son's new outfit, including Akshay Naheta, who's helping with public equity investments and potential acquisitions, and Saleh Romeih, who used to be a managing director in Deutsche Bank's credit trading business.

Anshu Jain, Deutsche Bank's former co-chief executive officer and key architect of its rapid growth in markets prior to the credit crunch, was an adviser at SoftBank-backed U.S. based online lender Social Finance Inc. until recently.

Whether or not all these ex-investment banking executives work mainly for the Vision Fund, which is run out of an office in London's Mayfair, or SoftBank, one thing is clear: Links between the two are tight.

The Vision Fund is advised by a SoftBank subsidiary called SB Investment Advisers, of which Misra is the chief executive. One of the fund's latest investments illustrates the close ties. ZhongAn Online P&C Insurance Co., in its Hong Kong IPO sale document, said SoftBank may make its cornerstone investment either through its wholly owned units, or the Vision Fund.

The answer to why SoftBank has turned to a bunch of ex-traders, rather than buy-and-hold private equity types, could lie in the way the Vision Fund has been structured.

While SoftBank put in equity to the tune of $28 billion, its partners, including the government funds of Saudi Arabia and Abu Dhabi, hold part of their stakes via preferred instruments, also known as mezzanine capital. It means they're owed yearly payouts, similar to a dividend.

Saudi Arabia's Public Investment Fund, for instance, is injecting $45 billion, but only $18 billion of that is straight equity, the Wall Street Journal reported in May. The preferred units will earn about 7 percent interest annually over the life of the fund, expected to be 12 years.

Achieving those sorts of returns won't be easy, particularly when your hunting ground is unlisted technology startups. SoftBank is pushing for a piece of Uber Technologies Inc., the ride-hailing giant whose continued losses would make preferred payouts hard to meet.

Shopping Spree
SoftBank Vision Fund's top portfolio investment is the $8 billion it has in ARM Holdings
Source: Bloomberg

Whether the Vision Fund manages to unearth the next Alibaba is anyone's guess. But one thing is certain: Experts in financial engineering will doubtless come in handy.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net