Sovereign wealth funds of Saudi Arabia and Abu Dhabi - the Public Investment Fund (PIF) and Mubadala – continue to be major losers of Masayoshi Son’s Vision Fund gambles on tech venture capital.
SVF1 made an investment loss of US$17.3 billion in FY2022/23, while it posted a US$11.4 billion gross gain on US$89.6 billion of investments since inception. SVF1’s follow-on investments totalled US$0.45 billion in the fiscal year, while disposals totalled US$5.79 billion. There were mixed results for exits, with partial exits yielding a US$1.7 billion gain and full exits losing the fund US$1.1 billion compared to investment cost. By the end of the year, SVF1 had a total of 76 investments (down from 82 in FY2021/22), of which 53 were private with an accumulated investment loss of US$8.7 billion and 23 were public with a loss of US$6.0 billion. The portfolio was burdened by JPY552.7 billion (US$4.1 billion) of debt, up 64% y-o-y.
For PIF and Mubadala, the losses are a setback. PIF invested US$45 billion in Vision Fund I (SVF1) while Mubadala sunk US$15 billion into the fund, which invests in emerging technologies and has also invested in disruptive startups in real estate, retail and transportation.
Global markets have been in turmoil amid rampant inflation and the U.S. Federal Reserve raising interest rates, prompting an exodus from high tech stocks. The ongoing Russian war on Ukraine continues to fuel concerns over global growth and geopolitical risks, adding extra pressure on markets.
Since 2018, SVF1 – with its strong SOI backing – has plunged around US$ 12 billion in Chinese private equity with exposure to these tech-driven consumer segments, from TikTok creator ByteDance to the world’s most valuable AI pioneer SenseTime. However, SoftBank is now less vulnerable to the Chinese government’s crackdown on its tech sector with its reduction in shares in Alibaba.
SoftBank has exited several startups and companies in the recent past, like in ride-hailing platform Uber, T-Mobile and Alibaba. It also reduced its India investments by around 84 percent in 2022 in comparison to 2021, including offloading a 3.8% stake in logistics service provider Delhivery for INR9.54 billion in March. In April, SoftBank sold one of its venture capital arms, SoftBank Ventures Asia, to Singaporean investment firm The Edgeof. And now Mubadala looks set to snap up asset manager Fortress Investment Group from SoftBank Group for a cool US$3 billion, which would represent a 10% reduction in the price the Japanese group paid for the credit investor.
Before the pandemic hit, there was mounting concern that the influx of VC into the tech sector was leading to inflated asset values, generating fears of a repeat of 1999 when the tech bubble burst. Although the fund bounced back into the black on a wave of equities growth in 2020, doubts over SoftBank’s strategy prompted state-owned investors to opt out of Vision Fund 2. Last year, SoftBank Group reported a record US$26.2 billion loss over its Vision Fund portfolios, generating criticism of Son’s strategy of concentrating heavily on riskier, high-growth stocks. At the time, he said, “In a year or two I think the stock market will recover and then the timing to go on the offensive will return,” but his predictions have fallen flat.
SVF1 points to the significant risks involved in betting on venture capital in tech. Although Uber’s IPO was one of the biggest in history raising US$8 billion, a badly timed launch meant it failed to reach expectations – which, alongside the near-collapse of WeWork, raised questions over SoftBank CEO Masayoshi Son.
A statement released with the FY2022/23 financial results was far less sanguine, “Share prices of numerous public portfolio companies declined for the fiscal year amid the weakness in global stock markets, although share prices of several companies rose in the fourth quarter. The fair value of a wide range of private portfolio companies also decreased, reflecting markdowns of weaker-performing companies and share price declines among market comparable companies.”
With IPOs slowing and private equity write-downs likely to have some way to go, SVF1’s outlook appears gloomy. SVF1’s latest losses suggest PIF and Mubadala did the right thing in looking at other general partners as well as originating their own deals.
