The Vision Fund has reinvented investing—and become a giant governance headache
years ago Masayoshi Son, a Japanese tycoon, broke all the rules of investing by setting up a new vehicle to back tech firms. The Vision Fund was unusual in several ways. Worth $100bn, it was enormous. Some $45bn of that came from Muhammad bin Salman, Saudi Arabia’s crown prince, who got the kingdom’s sovereign wealth fund to contribute. It took huge bets on trendy “unicorns”—unlisted firms worth over a billion dollars, such as Uber. And it gave almost total control to Mr Son.
Many sceptics dismissed the Vision Fund as a vast pot of tainted money squandered on hyped-up assets. And by October last year it looked as if they were right. The murder of Jamal Khashoggi, a journalist, cast Saudi Arabia and the fund into disrepute, while the shares of tech firms started to tank.Now, however, the Masa show is back on the road. The Khashoggi affair has receded and technology stocks have recovered.
These custodians of other people’s money should be on their guard. Mr Son’s relations with Saudi Arabia’s Public Investment Fund , which provided the $45bn, are reportedly strained. The reason is not the Khashoggi murder but theLooking in from the outside, the first problem is “key-man risk”. As with Prince Muhammad’s reign, Mr Son’s rule at the fund is absolute. If he views a startup as sufficiently world-changing, next to nothing will stop him betting big.
SoftBank and the Vision Fund obey rules on investing and their fiduciary duties. The fund uses independent valuers, including big audit firms. And SoftBank has a big direct stake in the Vision Fund and thus an incentive to see it prosper. Nonetheless SoftBank has too much scope to manoeuvre unlisted investments in high-growth but loss-making firms. Worse is the scant disclosure on how investments are valued, or how much cash the Vision Fund’s firms are burning up.
You do not need artificial intelligence to conclude that Vision Funds 1 and 2 need better governance. Both need independent boards. Bringing in a heavyweight technology executive to test Mr Son’s convictions would lessen the risk of dud deals. Transfers between SoftBank and the Vision Funds should stop. Investors must be told how positions are valued.Mr Son’s empire has become too big to get by with patchy, amateur governance.
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