TOKYO -- SoftBank may soon find itself facing complicated investment decisions with potential legal pitfalls as its new fund, to be set up jointly with Saudi Arabia, begins operations.
Already, a report says the Japanese conglomerate is poised to transfer part of its stake in Arm, the British computer chip designer it acquired six months ago, to the gargantuan new fund.
SoftBank also plans to sell parts of some of its other holdings to the fund, which has 10 trillion yen ($87 billion) to invest. While some experts say SoftBank may gain some governance benefits by going in this direction, others warn that CEO Masayoshi Son could find himself in some sticky decision-making situations.
SoftBank's new Saudi-backed fund, dubbed SoftBank Vision Fund, was born last summer when Son and Saudi Arabia's deputy crown prince, Mohammed bin Salman, met in Japan. The two immediately hit it off, and Son announced the fund two months later.
A report of the Japanese company transferring 25% of its Arm holdings to the fund surfaced earlier this week. Going forward, SoftBank is expected to make massive investments, worth tens of billions of yen, through the fund.
But don't assume transferring part of SoftBank's Arm holdings to the fund will be a simple, straightforward transaction.
SoftBank itself has declined to comment on the report.
While few details about the fund have emerged, SoftBank in October said the investment vehicle will be incorporated into its consolidated accounting.
If so, selling a stake that SoftBank already owns to the fund will only disperse ownership within the group, according to an analyst who tracks the telecom industry. The sale will represent no significant change for the company, the analyst added.
In other words, any transfer of Arm shareholder voting rights will not reduce SoftBank's influence on the British company.
Tomoaki Kawasaki, a senior analyst at IwaiCosmo Securities, said the sale will expose Arm's executives to more outside scrutiny. This could create positive effects on the British firm's corporate governance and earnings performance, Kawasaki said.
U.S. companies like Apple and Qualcomm will also put money into the fund -- and probably keep up the pressure on the fund to get good results.
This pressure -- if it does not restrict the management teams at SoftBank and Arm -- will benefit SoftBank shareholders.
But the new fund will force Son to consider three financing options every time he makes a new investment.
He will essentially have three pools of investment money to dip into -- those at SoftBank, the Vision Fund and Fortress Investment Group, a U.S. alternative asset manager that SoftBank has agreed to acquire.
Think of Son's investment targets as golden eggs. Tokyo-based lawyer Stephen Givens said Son will have to decide which pool each egg gets placed in.
He will have to weigh the interests of investors in all three entities, Givens pointed out. But this will make it difficult for Son to achieve his goal of generating synergies for SoftBank through alliances with companies it has invested in.
Another challenge Son will face is how to ensure transparency in the management of SoftBank, which he has grown by making use of financial markets.
SoftBank frequently issues large amounts of bonds to finance its operations and investments. This month, for instance, the company will issue 400 billion yen worth of bonds for individual investors and an additional 50 billion yen of debt for institutional investors.
SoftBank has gone from being a Japanese startup decades ago to an international business empire today. The group's sheer size requires due prudence and responsibility when it comes to investment decisions.
If Son makes a misguided investment decision -- if one of those eggs turns out to be rotten -- the SoftBank chief could be held legally liable, Givens warned. One way to escape this risk, Givens said, would be to integrate the three pools. Another way would be to draw clear boundaries between them in terms of purpose and mission, Givens said.
Can Son spread himself over three pools? His newly complicated mission will be fraught with challenges and risks.
