SoftBank Group's profit rebounded after a global rally in tech shares helped it improve its start-ups' valuations. AFP
SoftBank Group's profit rebounded after a global rally in tech shares helped it improve its start-ups' valuations. AFP
SoftBank Group's profit rebounded after a global rally in tech shares helped it improve its start-ups' valuations. AFP
SoftBank Group's profit rebounded after a global rally in tech shares helped it improve its start-ups' valuations. AFP

Business

SoftBank posts $7.6bn profit as its start-ups' valuation rises

A global rally in tech stocks has lifted the value of SoftBank’s stakes in publicly traded tech firms like Uber and other start-ups

Bloomberg

November 09, 2020

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SoftBank Group’s Vision Fund unit posted a record $7.6 billion profit in the second quarter, bolstered by a recovery in some start-up valuations and a blockbuster public offering by a Chinese real estate start-up.

The unit reported 784.4bn yen of income in the three months ended September 30, rebounding from a 612bn yen loss a year earlier, SoftBank said in a statement on Monday. The Tokyo-based company had a net income of 627.5bn yen in the quarter and did not release operating profit figures.

Masayoshi Son’s investment business is recovering from a record loss last fiscal year as a global rally in technology shares lifted the value of SoftBank’s stakes in publicly traded firms like Uber Technologies and improved the prospects for start-ups in its portfolio. But the losses derailed Mr Son’s plans to raise outside money for a follow-up to the original Vision Fund, which disbursed most of its $100bn in capital in under three years. Vision Fund 2 is much more modest in scale because it is financed entirely by SoftBank. It has also adopted a more cautious approach, cutting smaller checks at a slower pace.

“Vision Fund 2 is showing more discipline,” Atul Goyal, senior analyst at Jefferies, said ahead of the earnings announcement. “But at the end of the day, we need to see some exits and those are probably still years down the road.”

One success in the second fund’s portfolio is KE Holdings, a Chinese online property platform that went public in August. Shares in the company, also known as Beike, have surged since then, boosting the value of SoftBank’s original $1.35bn to more than $6.38bn as of September 30, according to Bloomberg calculations. SoftBank said its VF2 had an unrealised gain of 537.2bn yen on KE.

The Vision Fund unit set a new profit record in the quarter, beating the previous high in the third quarter of fiscal 2018, before Uber’s disappointing IPO and the implosion of WeWork’s offering the following year.

After shares plunged in March with the coronavirus outbreak, SoftBank unveiled plans to sell off 4.5 trillion yen of assets to reduce debt and fund buybacks. The sell-off included part of its interest in Alibaba Group Holding, T-Mobile US and SoftBank, the Japan telecommunications unit. SoftBank also announced a deal to sell its chip designer Arm to Nvidia for $40bn.

“For long-term SoftBank investors, quarterly earnings are of little import these days,” Jefferies’ Mr Goyal said. “The only thing that’s material is Alibaba’s stock price and the buyback.”

SoftBank has announced a record 2.5tn yen of re-purchases, helping its stock hit a two-decade high last month. Mr Son also plans to get into the blank-check frenzy and has contemplated a management buyout of SoftBank. He has used some of the proceeds to invest in US tech stocks in what the company described as a liquidity-management strategy.

While you're here

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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