It’s among the world’s biggest and most controversial technology investors, renowned for making huge bets on young, privately-held companies. Sometimes – most famously in the case of WeWork – they have backfired spectacularly.

Now Softbank, the Japanese conglomerate founded by billionaire Masayoshi Son, is being blamed for something else: taking colossal punts on shares in publicly traded tech companies, which have fueled extreme market volatility.

Until recently, a pandemic-defying surge in technology stocks this year has been pinned on retail investors and other speculators piling into companies like Apple, Tesla and Amazon.

On Friday, it emerged that SoftBank was adding fuel to the fire. Under Masayoshi,  the Japanese conglomerate had snapped up $4bn (£3bn) in call options – agreements to buy a stock when it hits a certain price helping drive the market up. 

SoftBank, which was quickly christened the “Nasdaq Whale”,  is under fresh scrutiny this week  over its high-risk investment style, as well as its links to a clique of former Deutsche Bank investment bankers who wield great influence within the organisation.

“I’ve never really been a fan of their strategy,” says Richard Windsor, an independent analyst at Radio Free Mobile. “But you have to take your hat off to Masa. He has nerves of steel.”

While the gains ultimately fell back last week, SoftBank is said to be sitting on $4bn in profits, according to the Financial Times which first reported the bets.

This sort of investment style is not entirely new for SoftBank. What was once a telecoms company now increasingly resembles a venture capital fund or a highly leveraged hedge fund.

Its strategy has seen SoftBank engineer ever more complicated, high-risk deals. Many of these can be traced to its dealmakers across London and Asia clustered around Rajeev Misra, a former Deutsche Bank veteran trader who sits on the Softbank Group board.

The Indian-born banker also serves as chief executive of SoftBank Investment Advisers which oversees the firm’s Vision Fund – a vast investment vehicle created backed with money from the sovereign wealth funds of Saudi Arabia and Abu Dhabi. 

Its latest plan is SoftBank’s new “investment management subsidiary”. This vehicle, which is two thirds owned by SoftBank and one third by Masa Son himself, was set up over the summer to invest in “highly liquid public listed stocks”. It is far removed from SoftBank’s previous lofty aims of a “300 year vision” to invest in small, fast-growing start-ups.

While Son is reported to be closely involved in this new phase of stock picking, setting up the new fund is also said to have involved dealmakers from the SoftBank Vision Fund.

Based at its London headquarters in a plush Mayfair townhouse, Rajeev Misra, who spent 12 years at Deutsche until 2008, is reported to have helped set it up. Misra, who is known to greet visitors barefoot and keeps his office heated to near tropical temperatures, sits on the board of SoftBank Group and leads a team leaning heavily on former Deutsche expertise.

Another investment manager whose star has been rising is 39-year-old Akshay Naheta. Naheta joined the Vision Fund in 2017 and was the brains behind a $1bn trade in WireCard, the fallen German payments business left broken by a fraud scandal. SoftBank was left unblemished by the fallout at Wirecard, as it had effectively funded the investment without its money.

Until 2011 he was also at Deutsche, rising quickly as a proprietary trader, before setting up his own firm focused on “arbitrage and value investing”. Naheta recently moved from the Vision Fund to join SoftBank Group to focus on investments, according to his LinkedIn. 

They are not the only City movers and shakers who are working with SoftBank’s billions. Colin Fan, former head of Deutsche’s trading business, Munish Varma, a former trader and Ioannis “John” Pipplis, former global head of fixed income. 

A separate firm, Centricus, founded by ex-Deutsche bankers, was also involved in fundraising for SoftBank’s $100bn Vision Fund. “There is a lot of overlap and camaraderie between them,” says one source.

The last two decades of the German bank’s history shed some light on how SoftBank has become a new home for such high-octane deal making.

Headquartered in its glistening twin towers in Frankfurt, the 150-year-old bank was known for building one of Europe’s biggest investment banking teams in the City and the US at the expense of its retail banking arm. A 2004 Economist headline dubbed it “a giant hedge fund”. It became known as a major purveyor of collateralised debt in the run up to the financial crisis.

In the aftermath, its investment team has been in decline and the bank has undergone multiple restructurings. Many of its biggest dealmakers have since jumped ship and some have ended up with SoftBank. 

While the huge bet on technology stocks appears to have paid off for Masa Son, it has spooked investors. 

SoftBank used a financial tool called a “call option”. It used $4bn to make down payments on $30bn worth of shares to buy them at an agreed price, effectively a down payment. Since the stocks surged above the agreed prices, it will be able to turn a profit.

Neil Campling, analyst at equity research firm Mirabaud Securities, claims that although the strategy may have brought short-term financial gains, it will have thrown investors who had felt SoftBank was going in a different direction. SoftBank shares fell more than 7pc, wiping around $9bn off its value.

In an earnings briefing in August, Son had given no signal of intent to pursue an “aggressive strategy more suited to a hedge fund”, Campling notes. Instead, he announced the move into asset management as a means of diversifying the firm’s holdings and to manage excess cash. 

“The August conference call even went as far as to call ‘defensive posture’ and more prudent asset management as the new SoftBank Business themes. There wasn’t anything about this strategy that appears defensive or prudent,” Campling says.

Chris Beuachamp, chief market analyst at IG, a trading service, sees the current push as an opportunity to make quick returns in the midst of a market rally that has seen tech stocks soar, helping cover ground for losses incurred from failed bets over the last year.

“You’ve got this influx of people who are more known for this hedge fund strategy than a long slow investment case,” he says.

“It’s a perfectly valid strategy if you know how to execute it and of course they do know what they’re doing. But it does always pose a risk because it can backfire.”

Source: Telegraph

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