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SoftBank's new tech fund a touchstone of Son's captainship

CEO envisions company as Buffet fund of tech world

TOKYO -- The massive technology fund that SoftBank Group plans to launch with a Saudi Arabian state-backed fund has the potential to drive the Japanese company's finances in either direction. Masayoshi Son's leadership will be put to the test.

Role model

"We will aim to be the Berkshire Hathaway of the technology industry," asserts the Softbank CEO -- evoking the investment firm of Warren Buffett, the "Oracle of Omaha."

SoftBank has been taking steady steps to launch this fund. Rajeev Misra from India, who was the right-hand man of former Softbank President Nikesh Arora, will oversee a few dozen former investment bankers and others who will manage the operation. Investing will begin as early as this fiscal year.

The fund will manage up to $100 billion -- an amount bigger than the 9.3 trillion yen ($80.6 billion) market capitalization of SoftBank itself.

It will invest in promising startups in such fields as the internet of things and artificial intelligence. The Saudi fund, contributing $45 billion, will be the largest stakeholder. SoftBank will shell out $25 billion.

This is an undertaking of far greater scale than SoftBank's past investments. The company will become more like an investment firm.

In addition, Son's building of face-to-face relationships with U.S. President-elect Donald Trump and Russian President Vladimir Putin is likely an effort to prime a favorable business environment.

Leveraging

SoftBank will see drastic changes in its balance sheet. Although SoftBank will be the second-largest investor in the tech fund, the associated assets will all be booked into SoftBank's holdings because of its responsibility in managing the fund.

In other words, the nearly 9 trillion yen contribution from other investors will push up by roughly 40% SoftBank's total assets, which stood at 22 trillion yen as of end of September.

How much of each investment has been recovered, and factors such as valuation losses, will sway group earnings. When the potentially unstable fund grows in proportion to other operations, SoftBank's earnings could swing more.

SoftBank Group's share price rose 26% in 2016. The September acquisition of U.K. chip designer ARM Holdings for 3.3 trillion yen has heightened hopes that ARM's chips and SoftBank's network infrastructure together could bring new business models.

The ARM purchase was an earnest wish of Son, who designated Arora as his successor only to put that plan on hold a year later, prompting Arora to resign abruptly. "Hopes are once again rising over CEO Son's foresight," says a source from Mitsubishi UFJ Morgan Stanley Securities.

Even in leisure, Son scored big after closing the ARM deal. He set a personal record on the golf course, shooting a 68 in early August. Anyone would have been exhausted after six overseas business trips in one month. But Son's concentration and excitement from securing a major deal propelled him even to score his first eagle in some time.

Son's perseverance and leadership have enabled SoftBank to navigate through critical junctures. His light-footed nature has planted many seeds of investment success.

In 1999, for instance, Son famously decided in just five minutes to invest in Alibaba Group. Founder Jack Ma Yun refused the proposed $40 million investment as excessive, but SoftBank finally won him over with a $20 million offer. Even though SoftBank has unloaded some Alibaba shares since then, the remaining stake is still worth several trillion yen.

Discerning eyes that can spot rising investment targets are a prerequisite to lead the new fund to success. And speed and perseverance will be of even greater importance than before. Son could send his company in either direction. He will have to prove himself once again.

On the Tokyo Stock Exchange, SoftBank shares have risen the last six sessions in a row.

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