Commentary on Political Economy

Wednesday 9 September 2020


SoftBank shareholders push for answers on ‘Nasdaq whale’ bets

Investors have unsuccessfully quizzed SoftBank for details on its new asset management unit since founder Masayoshi Son, pictured, disclosed it last month © Bloomberg

SoftBank shareholders are calling on the technology conglomerate to reveal who is running the unit at the centre of its large US equity options trades, with nerves over an unexplained strategic shift stoking a 10 per cent decline in its share price.

Investors have unsuccessfully quizzed SoftBank — famed for big bets on unlisted tech start-ups — for details on its new asset management unit since founder Masayoshi Son disclosed it last month, according to people briefed on the discussions.

Now, the company’s aggressive foray into US equity options, led by the Japanese billionaire and first reported by the Financial Times last week, has sown confusion about what this in-house hedge fund is doing, and how much risk it is willing to assume.

“Concern centres around the lack of information about the strategy that is going on behind this trading activity and also the wider question of who is in charge of these different activities,” said a person briefed on the views of one institutional shareholder.

The person said that, apart from the company’s huge stake in Chinese ecommerce giant Alibaba, asset managers were generally not invested in SoftBank because they wanted exposure to listed stocks they could easily buy themselves.

“The idea that Son is taking a kind of personal interest in the micro management of a hedge fund is a bit crazy when he’s also the head of a huge company,” the person added.

The FT has spoken to several large institutional investors since revealing last week that SoftBank had fuelled a long rally in tech stocks by placing billion-dollar bets on derivatives. The investors said that over the past few weeks — in some cases before the derivatives trades came to light — they had attempted to discover how the asset management unit was managed and, in particular, who was in charge of its day-to-day running. The investors said that despite those efforts, SoftBank has refused to disclose who was in charge beyond assuring them that Mr Son was closely involved. 

SoftBank said it has confirmed only that Mr Son is a member of its investment committee. It has not disclosed the other members of the committee, nor the date of the unit’s establishment. It declined to comment further.

The existence of the asset management unit was revealed to shareholders last month, with initial capital of $555m, made up in part of funds contributed by Mr Son. However, the division has far larger firepower at its disposal, because it uses loans of cash and publicly traded securities from SoftBank’s vast balance sheet to make investments in publicly listed stocks. 

In a regulatory filing in mid-August, SoftBank revealed that it had bought nearly $4bn in tech stocks including Amazon, Microsoft, Tesla and Google’s parent Alphabet. 

But people with direct knowledge of SoftBank’s trades say that over the past month, it has also snapped up $4bn worth of mostly call options — bets on further price gains — in some of those names, taking on options exposure with a notional value of $30bn. Analysts and other hedge fund managers say that scale is large enough to have contributed to the latest stage of rally in those stocks, through purchases other market participants have made to hedge those SoftBank bets. 

Shares in SoftBank have doubled in price since the global market ructions of March, and are still 20 per cent higher on the year so far. But they stood 10 per cent below the previous week’s closing price on Wednesday.

Rajeev Misra, who heads SoftBank’s $100bn Vision Fund, and Akshay Naheta, a former Deutsche Bank trader and a close ally of Mr Misra, are closely involved in the huge derivatives bets on selected US tech stocks, but Mr Son has driven the decisions behind the options trades, according to people with direct knowledge of the matter.

While Mr Naheta has been named in some media reports as heading up the asset management unit, the 39-year-old SoftBank executive is not formally in charge of the division, according to two of those people.

Mr Naheta has a history of carrying out complex trades involving equity derivatives, both in his previous role in SoftBank’s Vision Fund and at Knight Assets, the hedge fund he managed before joining the Japanese conglomerate.

But these trades have typically involved making intricate bets on specific companies — such as a controversial structured investment in Wirecard’s shares last year — rather than general calls on the direction of markets. 

Despite the concerns voiced by global investors, fund managers based in Asia said long-term holders of SoftBank know they have, in effect, bought share in a company controlled by Mr Son, and those uncomfortable with that should probably not invest. 

Nevertheless, one Hong Kong-based shareholder said the trading in the US had raised questions over the underlying philosophy of SoftBank as a company. “That became a little less clear this week, I would say,” this person said.

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