Next time you think about leaving banking and going into private equity in search of your fortune, spare a thought for the senior Deutsche bankers who did just that. Today's results from SoftBank's Vision Fund suggest they won't be making big money after all and could instead end up nursing a huge personal loss.
In the three months to September, the combined Vision Fund and Delta Fund achieved an $8.9bn operating loss, plus a further loss of nearly $5bn on unrealized investments. The loss comes from the Vision Fund's investments in the likes of Uber and WeWork, neither of which have turned out as planned.
As we've noted often, SoftBank Investment Advisors, which runs the Vision Fund is stuffed full of former senior Deutsche Bank traders, plus the odd ex-Goldman Sachs partner. All were undoubtedly lured by the promise of huge returns on the $70.7bn the Vision Fund has already invested.
$14bn of losses later, they might not be feeling so ebullient.
Even so, Rajeev Misra, the former head of credit trading at Deutsche and CEO of the Vision Fund, seems to have been pretty bullish until recently. Even in late September, Misra was telling Nikkei's Asian Review, that the fund's losses were mere flesh wounds. The Vision Fund was going for 300% returns in the long term, said Misra, and in the circumstances paying a little too much for investments at the outset was immaterial.
Even today, the documents accompanying Softbank's results reiterate that upbeat message, saying that the purpose of the Vision Fund is to, 'maximize returns from a medium- to long-term perspective, through making large-scale investments in high growth potential companies that are leveraging AI, particularly in private companies with estimated corporate values of more than $1 billion, colloquially known as “unicorns.”'
How long is long term? SoftBank doesn't say. However, of the 88 investments the Vision Fund made between 2017 and September 2019 (having spent its money more quickly than planned), only two (Genomics and Vir Biotechnology) have so far gone public and one other (CloudMinds) has filed for an IPO. The fund was mostly measuring its fortunes in large unrealized gains, which have now become large unrealized losses.
For the ex-Deutsche Bankers and others who work for the Vision Fund, this is a pain in the wallet. The fund contains at least $5bn of employees' own money (much of it loaned from SoftBank). The unrealized losses of $5bn on the $70bn invested suggest employees have lost 7% of this so far, with further writedowns likely. Today's accounts also reveal that third-party investors only account for 64% of money in the fund and that 'The Company' itself accounts for the rest.
None of this makes the Vision Fund seem a lucrative place to work. And quite a few people do work there, not all of them from Deutsche Bank. - SoftBank Investment Advisors in London current has 58 registered employees according to the FCA Register, many of them hired this year. There have been a handful of exits (eg. Arif Lakhani in September, Fernando Goncalves and Ayesha Alsuwaidi in June), but nothing that suggests serious cost-cutting.
This may change. WeWork is said to be preparing staff for further redundancies. After today's losses, the Vision Fund itself may need to make some cuts too. Unfortunately Deutsche Bank is no longer hiring (or at least not much above graduate level), and nor are most investment banks.
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