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SoftBank to double 'unicorn' bets but raises prospect of lower returns

CEO Son says 19% annual returns could deliver $1.8tn valuation by 2040

"SoftBank is a conductor," CEO Masayoshi Son said, likening its portfolio of investments to musicians and sponsors to the audience.   © Reuters

TOKYO -- SoftBank Group's investment arm plans to double the number of "unicorns" -- private companies valued at $1 billion or more -- in its portfolio within two years, in a show of confidence that it can maintain the blistering pace of investments from the world's biggest technology fund.

But CEO Masayoshi Son, speaking to investors at the group's annual meeting in Tokyo, also sketched out a scenario of lower returns for the Vision Fund than in the past, in a sign that he wants to manage investor expectations as he prepares to tap them for a second $100 billion fund.

The SoftBank founder, characteristically upbeat, insisted that even with lower returns of 19% over the next two decades, against the 62% return he had boasted for the first two years of the fund, the group would still be on track to meet its goal of becoming one of the world's 10 biggest companies by market value by 2040. This assumes SoftBank invests 6 trillion yen ($55.4 billion) in the Vision Fund business.

"If you continue 19% [returns] for 20 years ... 6 trillion yen becomes 200 trillion," Son told shareholders. Insisting this was not a business plan, he still added, "Aren't you starting to feel like it can be done?"

His target is a far cry from SoftBank's current market capitalization of around 10 trillion yen. But analysts suggested it was not unrealistic.

"Given the high risk/high return nature of the Vision Fund investments, and SoftBank's exposure to the higher risk/return equity component of the fund, 19% seems broadly achievable," said Dan Baker, an analyst at Morningstar. "But investors are hardly going to capitalize that into the current SoftBank share price."

Son's comments come as some investors show concern over the high price SoftBank has paid for tech stakes, and after a disappointing market debut in May for U.S. ride-hailing giant Uber Technologies, one of its flagship investments. The post-IPO performance has not been reflected in the 62% return figure.

The first Vision Fund is a nearly $100 billion fund -- the world's largest technology-focused investment vehicle -- backed by Saudi Arabia and Abu Dhabi as well as SoftBank's own capital. Investors are closely watching whether SoftBank can raise another fund of the same scale amid these concerns. 

Son's team showed no sign of scaling back its ambitions. 

"We started investing in May 2017 ... and we have 75 unicorns," said SoftBank Executive Vice President Rajeev Misra, who oversees the Vision Fund. "It is the biggest platform of technology companies, and I believe in a year or two there will be roughly 150 technology companies under the umbrella." 

Son said the first fund will "soon finish investing" and that a second fund will be launched imminently. "Many investors in fund one want to participate in fund two. We will start negotiating terms," he said. 

SoftBank is rapidly transforming from a telecommunications operator into an investment holdings company with large stakes in the world's top artificial intelligence companies. Son said there are more than 400 staff in the Vision Fund, which will more than double to 1,000 "in the near future." 

"SoftBank is a conductor. If each [portfolio] company is a musician, then we want to make an ecosystem in which musicians can perform comfortably, and the audience, who are the sponsors, will come to watch," he said.

One hurdle for SoftBank involves a pending merger approval between its U.S. mobile unit Sprint and T-Mobile. Analysts say SoftBank will need to inject additional capital into Sprint if the merger falls through, given its high levels of debt. 

SoftBank is "optimistic" that U.S. regulators will approve the merger, said SoftBank Executive Vice President Marcelo Claure, who also serves as Sprint's chairman. The commitments made by the two telecoms -- which include building a nationwide fifth-generation telecom network and lowering prices for consumers -- will convince regulators that the merger will enable the U.S. to lead the global 5G race, he said. 

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