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Tim Culpan

Bankers Keep Vision Fund Going With Rubber Bands

SoftBank’s investment vehicle is on the hook for $3 billion annually, no matter what.

How soft will his bankers be?

How soft will his bankers be?

Photographer: Tomohiro Ohsumi/Getty Images

Forget that $24 billion writedown on investments that SoftBank Group Corp. reported late Monday. It’s bad. But it’s only paper. The Japanese conglomerate faces a far more tangible problem as the value of portfolios plummet and credit ratings get slashed. The issue is cash. Specifically, at the $100 billion Vision Fund.

Most venture capitalists  operate by taking in money from limited partners and throwing it at speculative investments, and then distributing the results (less fees) as those startups sell out or list. The fund does all that, but it also has a curious side deal that allowed it to raise such a large pile.

Approximately $40 billion of its money came in the form of preferred equity, requiring managers to pay a 7.5% annual dividend. That’s $3 billion that must be paid out every year, no matter how the underlying portfolio performs.