SoftBank to lend $20 Billion to its employees to invest in Vision Fund 2
Three weeks ago, SoftBank announced its Vision Fund 2 of $108 billion — 8 percent higher than its debut fund. It is still in talks to raise that amount from investors, and has already injected $38 billion of its own capital, looking to be the biggest contributor.
Now, it has announced that it will allow lending of up to $20 billion to its employees at 5% interest rate, for them to invest in this new fund — including Masayoshi Son, the Chief Executive Officer of SoftBank Group. The Wall Street Journal reported that that Son himself could account for half of that amount, according to people familiar with the matter.
However, this is not the first time that SoftBank is lending to its employees for investing, it did the same at the debut of its first Vision Fund as well. Employee contributions accounted for $8 billion of the entire $100 billion fund.
As the startup and investment market worries investors with unicorns struggling to make profitable returns, they are becoming vary of risks coming from a saturating market in many sectors, such as ride-hailing, e-commerce, logistics, and more. Uber’s share price has declined by 30 percent since its IPO, while WeWork’s financials show losses at par with revenues in spite of growth.
This latest move by SoftBank could play a part in making fund managers, investment decision makers and portfolio managers who have invested in the fund become more vigilant in their jobs as they will have a stronger incentive to get higher returns for SoftBank. However, given Japan’s work culture, employees could be expected to participate in the fund; putting them in a somewhat forced position of investing.
This could be seen as a double edged sword amongst fears of recession and returns not covering interest payable. However, the technique was used in the initial fund which saw SoftBank receiving high returns, even though it is not proven to have a direct impact and there were multiple factors at play.
With the debut Vision Fund of $100 billion almost spent, receiving profitable returns, SoftBank is looking to raise capital quickly to start deploying in the market. This $20 billion along with the initial $38 billion could make SoftBank the highest investor in the world’s largest investment fund.
While it is unorthodox for a fund sponsor to have maximum stake, this move will make it easier for SoftBank to inspire trust in the market and raise investment from the banks and other prospective investors mentioned in its fund announcement.