SoftBank Group CEO Masayoshi Son.
Charly Triballeau/AFP via Getty ImagesSince its launch in 2016, SoftBank Group’s Vision Fund, by far the world’s largest venture-capital portfolio, has faced doubters and critics who thought the $100 billion fund was simply too large to manage effectively. And some early stumbles—in particular a large investment in WeWork that resulted in substantial write-offs—provided early evidence that the fund might not succeed as planned.
But the times have changed—and the fund is now delivering substantial returns. While he confesses to “many regrets,” SoftBank founder Masayoshi Son’s vision for the Vision Fund seems to be playing out as planned.
You can see that in SoftBank’s (ticker: SFTBY) financial results for the March 2021 fiscal year, announced on Wednesday in Tokyo. For the year, SoftBank posted net income of about 5 trillion yen, or $45.6 billion, which compares with a loss of $8.8 billion in fiscal 2020.
SoftBank posted investment gains for the year of $69 billion—roughly equal to half of the company’s current market capitalization. That includes gains of nearly $42 billion in the Vision Fund, including $3.9 billion in realized gains, and $39.3 billion in unrealized gains. Vision Fund 2, a smaller portfolio, had $4.5 billion in unrealized gains. The company also booked $3.8 billion in realized gains on its position in T-Mobile US (TMUS), and another $2 billion in unrealized gains on its ongoing T-Mobile holdings.
In the March quarter, the company had three Vision Fund companies go public, including Auto1 Group (AG1.Germany), South Korean e-commerce company Coupang (CPNG), and View (VIEW), bringing the number of IPOs for the fiscal year to six. That brings the number of listed companies in the Vision Fund portfolio to 11 of 81 total holdings. Vision Fund 2 had one company list in the quarter—the SAP spinoff Qualtrics International (XM).
The two Vision Funds had gains of $32.8 billion in the March quarter alone, by far the best results since SoftBank started the original Vision Fund in 2016. That marks a sharp increase from the $12.4 billion in gains booked in the December quarter, previously the best quarter in the history of the funds.
Over the 12-month period, the two Vision Funds had combined gains of $58.2 billion. That includes a $28 billion gain on the company’s stake in Coupang; a $490 million gain on View, a smart-window company that went public via a SPAC merger; a $2 billion gain on the initial public offering for the real-estate firm Compass (COMP); and a $910 million gain on Zymergen (ZY), a biomaterials company.
SoftBank reports that the value of its investments in the Vision Fund as of March 31 stood at $140.7 billion on $85.8 billion in invested capital. For Vision Fund 2, the positions were worth $11.2 billion, on $6.7 billion of invested capital. As of March 31, the Vision Fund’s biggest winners included gains of $28 billion on Coupang, $12.1 billion on Uber Technologies (UBER), and $8.3 billion on DoorDash (DASH).
SoftBank reported that the internal rate of return on the Vision Fund since inception has been 30% for limited partners and 7% for preferred investors as designed under the structure of the fund, for a blended return on an annualized basis of 22%. For SoftBank itself, the fund, including the management fee, has generated a return of 39%. SoftBank is the only investor in Vision Fund 2, which has generated an IRR of 119%. SoftBank said it had generated a 62% return on its $5 billion Latin America fund and that it has investments in 224 companies, spread across the two Vision funds and the Latin America fund, including 30 investments that have been approved but not yet closed.
SoftBank said it has completed the sale of $51 billion in assets under a program announced last spring, through the sale of stakes in T-Mobile, Alibaba Group Holding (BABA), and SoftBank (9434.Japan), the similarly named Japanese telecom company. Proceeds have been used to repurchase $17.9 billion of its shares and to pay down $9.2 billion in debt. SoftBank said the remaining proceeds have been “invested in highly liquid listed stocks in readiness for future investment opportunities.”
SoftBank said the company’s net asset value at year end was $236 billion, up $36 billion from a year earlier. The company’s stake in Alibaba accounts for 43% of the total, the two Vision Funds another 25%, and the remaining 32% a mix of equity stakes, including SoftBank, Arm Holdings, and T-Mobile. The company holds about $269 billion in equity positions overall, offset by about $34 billion in debt. The company’s current market cap is $145 billion, about a 39% discount to net asset value.
In a presentation on the financial results, SoftBank includes slides that review the firm’s “many regrets,” including “failed investments,” “missed investment opportunities,” and “lack of systemic approach.” The company said they are “issued to be addressed sincerely.”
“For me there are many regrets,” Son said in a press conference discussing the results. “There are some failures in investments like WeWork, Greensill, and Katerra. But what’s even more regrettable is that I have also missed so many great opportunities for investments…also, in many ways, there is a lack of systemic approach so we would like to address such issues.”
Added Son: “There is an opportunity for growth so long as we learn our lessons. Not gambling, not one-time gains—we have a systematic approach in place so that we can be a true producer of golden eggs. The AI revolution has just begun. Money is just a tool. From our perspective, what matters most is our vision which has remained the foundation of our company.”
Amid a sharp selloff in technology shares, SoftBank’s U.S.-listed stock was down 5.9%, at $41.50, in recent trading.
Write to eric.savitz@barrons.com
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SoftBank Posts Huge Gains on Vision Fund Holdings, Admits 'Many Regrets' - Barron's
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