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Microsoft and Foxconn join SoftBank's $108bn Vision Fund sequel

Saudi Arabia and Abu Dhabi not named on list of participants

SoftBank founder and CEO Masayoshi Son speaks during a news conference in Tokyo. (Photo by Ken Kobayashi) 

TOKYO -- Microsoft and Foxconn Technology have joined more than a dozen other investors who have agreed to contribute at least $70 billion to the sequel to SoftBank Group's near $100 billion Vision Fund, as the Japanese conglomerate looks to maintain its rapid pace of deal-making in technology companies around the world.

SoftBank signed memorandums of understanding with the investors, which also include major Japanese banks, Taiwanese investors and a sovereign wealth fund of Kazakhstan, it said in a news release on Friday.

The sovereign wealth funds of Saudi Arabia and Abu Dhabi, which contributed the majority of capital to the first fund, were not named on the list of participants.

SoftBank also plans to invest $38 billion of its own capital, significantly more than its commitment in the first fund, bringing the total expected size of the second vehicle to $108 billion. This amount may further increase if talks with others such as Goldman Sachs are successful.

Softbank's contribution will be funded by exits from its first Vision Fund, which has stakes in more than 70 companies, including U.S. coworking space provider WeWork, Chinese ride-hailing giant Didi Chuxing and Indian fintech startup Paytm. A number of IPOs are expected in the coming months, with WeWork reportedly mulling a float in September.

SoftBank's board of directors on Thursday approved the second fund and the additional commitment, according to sources familiar with the matter.

It remains unclear when the new fund, managed by a SoftBank subsidiary, plans to start investing.

The decision comes only two years after the first $100 billion fund began investing, and means 61-year-old Masayoshi Son, the group's founder and CEO, is doubling down on his ambition to create a network of technology companies dealing with artificial intelligence.

The Vision Fund has shaken up the investment business by writing huge checks to tech companies that have yet to go public, even if their business models are unproven. Companies that have received the fund's blessing have used the proceeds to undercut competitors and enter new markets. A second fund will be a blessing for cash-hungry startups eager to grow.

Investment fund managers typically commit a small percentage of the total fund as a way to show outside investors that they have "skin in the game." SoftBank's unusually high contribution -- the additional commitment comes on top of the $28.1 billion it pledged for the first fund -- means the company's own fortunes will be closely intertwined with the changes in the value of its investments.

In May, Son defied some early critics by announcing a 45% net equity internal rate of return -- a metric used to measure a fund's performance -- for third-party investors, a figure widely considered successful by industry standards.

The additional investment "is a strong endorsement that SoftBank's board believes this vehicle is value creating," said Chris Lane, an analyst at Sanford C. Bernstein.

But some investors are skeptical whether SoftBank can continue to deliver returns over the fund's 12-year life span. U.S. ride-hailer Uber Technologies, in which the fund invested $7.7 billion, had a disappointing stock market debut in May. As a reflection of the uncertainty, SoftBank's stock price trades at a significant discount to the sum of value of the stakes it owns.

The decision comes as the U.S. Department of Justice reportedly nears approval of a merger between SoftBank-controlled U.S. carrier Sprint and T-Mobile, a larger rival.

Son, who spent tens of billions of dollars upending the mobile telecommunications industry, now believes AI will create industry giants just as the rise of the internet created Google, Microsoft and Amazon.

The new fund's structure will be similar to the existing fund, in which third-party investors will receive two classes of shares -- equity and preferred equity, which pays a fixed dividend. The unique structure is designed to hedge risks for third-party investors.

Mitsuru Obe in Tokyo contributed to this report.

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