How the mighty are fallen. This time last year, SoftBank's Vision Fund was the place to work. Now, a job there is starting to look a little like a poisoned chalice.
WeWork and the antics of its former CEO Adam Neuman, plus his 20+ family and friends, are the immediate catalyst for the Vision Fund's fall from grace. The fund owns nearly one third of 'We' and the Wall Street Journal reports today that filings relating to the IPO were "sloppy" with details either incorrect or absent. Reuters reported last week that Softbank's plans for a second Vision Fund are floundering as a result of the WeWork chaos, and that the new fund may therefore have to be far smaller than the $108bn initially planned.
It's all a bit of a nightmare for Deutsche's ex-trading glitterati. As we've noted numerous times before, SoftBank Investment Advisors, which runs the Vision Fund is something of a reunion for people who were at the helm of Deutsche's credit trading business in the good old days. Two months ago we counted at least six senior ex-DB people working there, including: Rajeev Misra, the former head of credit trading at Deutsche (who's the CEO); Colin Fan, the ex-head of Deutsche Bank's trading business; Akshay Nikita, a former head of proprietary trading and principal strategies at Deutsche Bank; Munish Varma (formerly an FX and structured credit trader at DB); Saleh Romeih (formerly a Deutsche MD in Singapore); and Faisal Rahma (former co-head of financing and solutions for Central Europe at DB).
Since then, Deutsche has also hired Ioannis “John” Pipilis, Deutsche's former head of fixed income trading. The only person missing is Sajid Javid, the UK's current Chancellor of the Exchequer.
In an article last week, the New York Times noted that while WeWork may have been the canary in the Vision Fund's coalmine, it's not the only SoftBank bet that investors have soured on. Two other Vision Fund babies, Uber and Slack, which have IPO-ed already, have declined in value by 30% and 40% respectively since going public earlier this year. The NYT quoted analysts at Bernstein who estimate that SoftBank could lose $2bn if WeWork ends up being valued at $15bn instead of the $47bn hoped for originally. Losses could be higher still if the Vision Fund's investments were to become a byword for toppy valuations.
Misra is doing his best to stop this perception from spreading. In an interview last week with Nikkei's Asian Review, he said the Vision Fund is looking for 300% returns and that in these circumstances, paying a little above the odds at the outset is immaterial. "If you think your $1 is going to become $3, whether you pay $1.1 or $1 [is less important]," Misra told the journalist. He pointed out, too, that some of the fund's investments have done very well. - 10x Genomics, a biotech company that floated in September, has experienced a 20% lift in its share price in a month. And Misra outlined a strategy whereby Vision is investing in an "ecosystem" of companies that will work together. So far, it's invested in 80 and the second Vision Fund is all about adding to that.
It's fortunate that Misra has confidence in the strategy, because he, the other ex-Deutsche managing directors, plus the other 390 or-so other SoftBank Investor Advisor employees, are being asked to put their own money behind it. In August, SoftBank said it would provide employees loans seemingly averaging $50m each (given that it wanted to raise $20bn from staff) to invest in the second fund. The Financial Times reported in September that employees weren't that enthusiastic about this, but were feeling compelled to take out the loans anyway for fear of hurting their careers. A spokesperson for the Vision Fund told the FT staff were encouraged to invest in order to, "ensure strong alignment of interests between key staff and our limited partners.”
Employees' hesitation might have something to do with the fact that they're pretty exposed to the fund's investments already. The first Vision Fund contains $5bn of employee money, much of it loaned from SoftBank Chief Executive Masayoshi Son, according to the FT. In an interview with the Wall Street Journal last month, Son said he was counting on five or six IPOs from the portfolio during the fiscal year ending March 2020, and another 10 the next. Suddenly that looks optimistic.
For people like Misra, Fan and Pipilis, events have therefore taken an unfortunate turn. All three men made many millions during their time at Deutsche and all three - plus their colleagues - risk losing many millions during their time at the Vision Fund. Do they double-down? Or get out?
Some of their ex-Deutsche colleagues are sympathetic. "This is Masayoshi Son's mess," says one Deutsche Bank credit trader, adding that it would be unfair to pin the problems on Misra et al. Others are basking in schadenfreude. "These guys are consummate dealmakers who got rich at DB while shareholders lost out," says one (referring to the 95% fall in Deutsche's share price since the financial crisis). "SoftBank has now massively leveraged them, and if losses hit again their exposure is going to be hugely magnified."
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