SoftBank and Saudi’s PIF Set up SoftBank Vision Fund

The technology-focused London-based fund will have an initial corpus of $70 billion

s1Japanese internet and telecommunications investment giant SoftBank Group Corp. is teaming up with Saudi Arabia’s sovereign-wealth fund called the Public Investment Fund (PIF) to create a multibillion-dollar technology-investment fund, as reported by The Wall Street Journal on Friday, October 14th, 2016. Called the SoftBank Vision Fund (SVF), the fund will be based out of London and will be headed by SoftBank’s head of strategic finance, Rajeev Misra. SoftBank has also engaged former Deutsche banker Nizar Al-Bassam and ex-Goldman partner Dalinc Ariburnu for the project.

While SoftBank plans to invest at least $25 billion over the next five years to the SVF, PIF may contribute $45 billion over the next five years as the fund’s lead partner. SoftBank is also talking to a few large global investors who could eventually invest in the new fund, bringing the total investment to about $100 billion, thereby making SoftBank the world’s largest private equity investor in the technology sector over the next decade.

SoftBank, led by CEO Masayoshi Son, has emerged into a $68 billion tech investment firm from a $50,000 start-up set up in 1981. SoftBank was one of the earliest investors in Yahoo Inc. (NASDAQ: YHOO) and Chinese e-commerce giant Alibaba Group Holding Inc. (NYSE: BABA), and more recently in India’s ride-hailing service, Ola. It is known for its large investments in tech companies such U.S. mobile carrier Sprint Corp. (NYSE: S), and U.K. chip designer ARM Holdings PLC, which it bought for $32 billion in July 2016.

SoftBank steps up pace of investments in tech

SoftBank has also been stepping up its pace of investments, channeling more than $45 billion into technology investments alongside co-investors over the past two years, and hiving off its overseas investment operations into a separate unit earlier in 2016. Its recent investments include participation in a $4.5 billion fundraising round for Chinese ride-hailing firm Didi Chuxing Technology Co. and $1 billion into South Korea’s largest mobile commerce company Coupang.

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To help fund its future investments, SoftBank has sold $10 billion of its stock in Alibaba, in which it has a 28% stake, while unloading its shareholding in Finnish mobile game-maker Supercell Oy for $8.6 billion. In 2015, SoftBank formed a joint venture with India’s Bharti Enterprises and Taiwan’s Foxconn Technology Group to invest about $20 billion in renewable energy in India. SoftBank also plans to invest as much as $10 billion in Indian tech companies and around $4.5 billion in South Korea’s technology sector over the next decade. However, it has also borrowed heavily to finance many of its investments and its debt currently has a junk rating.

PIF seeks to diversify beyond oil

s3Not far behind, PIF, founded in 1971 to finance development projects in the Kingdom of Saudi Arabia, was known for its conservative approach to its investments in the global markets, investing its oil wealth in assets such as U.S. Treasury bonds and bank accounts. In 2015, Saudi Arabia, the world’s biggest oil exporter, saw its budget deficit widen to nearly $100 billion, or 15% of its GDP, following a fall in global oil prices by more than 50% since June 2014. Given this scenario, the PIF is central to Saudi Arabia’s plan to diversify its economy beyond oil. As part of its new economic reforms under its Vision 2030 plan announced by Deputy Crown Prince Mohammed bin Salman, the son of King Salman, Saudi is looking to diversify into sectors that do not rely on the country’s oil resources.

s4The Saudi government is looking to expand the scope and size of the PIF, effectively turning it into a vehicle for non-oil investments abroad. It also plans to transfer ownership of state-owned oil giant Saudi Arabian Oil Co., or Aramco, to the PIF, which will eventually have nearly $3 trillion in assets. As a first step in non-oil investments, PIF acquired a 38% stake in the engineering unit of South Korea’s Posco for $1.1 billion in 2015. In June 2016, it invested $3.5 billion in Uber Technologies Inc., the world’s most valuable startup at $68 billion, its largest overseas investment yet. Uber, a ride-hailing service that connects passengers and drivers globally, is most-used form of transport for Saudi women, who are not allowed to drive.

For Softbank, the setting up of the new tech fund is a means to accelerate its global growth strategy. However, as tech investors continue to channel record amounts of money into technology firms, the soaring valuations of some start-up tech firms have led many to worry that the sector is overheating.

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