Message from SoftBank Vision Funds Management—SoftBank Group Report 2023
Resilience and Discipline
in a Challenging Market
Member of the Executive Committee, SB Global Advisers
Co-CEO, SB Investment Advisers
Member of the Executive Committee,
SB Global Advisers
CFO, Member of the Executive Committee,
SB Global Advisers
CFO, SB Investment Advisers
When Masa (Masayoshi Son, Representative Director, Corporate Officer, Chairman & CEO of SBG) addressed investors and the media at SBG’s earnings in May 2022, he talked about the importance of strengthening our defense in turbulent times. These remarks were well-timed, as global market instability increased over the course of the year. The continued escalation of the conflict in Ukraine prompted a spike in global energy prices while ongoing geopolitical tensions between the U.S. and China saw local regulators adopt a more interventionist stance with technology-led growth startups. Tightening monetary policy has also increased the cost of capital. In the face of persistent consumer inflation, central banks have taken action; since the beginning of 2022, the U.S. federal funds rate has climbed rapidly, and as of March 2023 it was at 5%—the highest since 2007. The pace of the rate hike cycle wrongfooted numerous financial institutions. Banking failures from Silicon Valley Bank, Signature Bank, and First Republic Bank remind us that we remain in volatile times.
This macro instability translated as a sizable correction in global markets. The NASDAQ-100 Technology Sector Index fell as much as 40.2% in the first half, while the Refinitiv Venture Capital Index was down 57.7%. Although this was a market phenomenon, not a SoftBank Group one, we were impacted. As of March 31, 2023, collective markdowns for fiscal 2022 across SoftBank Vision Funds equated to 21% of assets. Looking at the more granular detail of performance since inception, SoftBank Vision Fund 1 remains in positive territory, posting $11.4 billion of cumulative gross investment gains* since launch. The vintage of SoftBank Vision Fund 2 and LatAm Funds meant the impact on performance was more marked, with these funds currently marking a cumulative investment loss of $18.3 billion* and $1.7 billion,* respectively.
In the face of growing market uncertainty, we pivoted our strategy to prioritize defense. Following high volumes of new investments in fiscal 2021, we radically scaled back the rate of capital deployment in fiscal 2022, applying an increasingly high bar for any new investment approvals. The agility of this response means that we have been able to preserve capital through the present volatility and still have substantial dry powder to deploy when market conditions improve.
Capital preservation was also a key feature in our portfolio management over the year. Our investment teams engaged with management teams in every sector and geography to support their companies in becoming more operationally and financially resilient. In today’s environment, businesses are learning to achieve more with less, whether that is to strengthen company governance and culture, reexamine supply chains, or make core processes more efficient. A focus on the fundamentals has in part meant that our companies continue to attract capital from prestigious global investors, a source of encouragement in the face of sustained market uncertainty. As of March 31, 2023, 98% of SoftBank Vision Fund 1 private portfolio companies by fair value had over 12 months of cash runway, while 90% of private portfolio companies in SoftBank Vision Fund 2 and 84% of private portfolio companies in LatAm Funds have the same cash runway. The markets may continue to fluctuate, but our portfolio companies are prepared for the potential impact of today’s conditions and are determined to grow sustainably.
At the fund level, we continue to focus on maximizing value across our portfolio and returning capital to our LPs, including SBG. There are multiple drivers to our monetization strategy, which range from strategic and financial to opportunistic. First, we consider asset-specific factors, including performance expectations, position size and liquidity, and investment risk profile. Second, we review a broad spectrum of market and fund factors, including sector and geographic outlook, macroeconomic outlook, and optimization of IRR and MOIC. This disciplined approach to monetization is the cornerstone of our consistent returns profile since inception, posting robust growth in cumulative proceeds year over year. Our strategic monetization during periods of market strength resulted in an approximate $30 billion increase in cumulative proceeds, from $16.5 billion in December 2020 to $46.0 billion in December 2021. Furthermore, this contributed to a gross realized gain of $22.9 billion.
Maintaining a defensive posture extended beyond our investment activities and portfolio. We also took steps to improve our own operating efficiency. This included the consolidation of the SoftBank Group’s international investment capabilities within SB Investment Advisers and SB Global Advisers. This has allowed us to concentrate our investment capabilities within a single, integrated team, as well as deliver operational synergies across multiple functional teams. The benefits of this approach are immediately apparent, and we are working more closely with all parts of the firm as “One SoftBank.”
Global markets continue to demand caution, but our portfolio continues to make progress behind the scenes. We have a strong stable of late-stage companies in our mature portfolio, representing over $37 billion in fair value, which are primed for public listing when the time is right.
While cautious and deliberate, we feel well-prepared for the changes that fiscal 2023 will bring. Through our selective investing approach, value optimization, and disciplined monetization, we continue to evolve our investment platform to meet market opportunities.
SBG consolidated basis. All other figures in this section are on an SVF stand-alone basis. Before deducting third-party interests, tax, and expenses.
This page is based on the information as of July 27, 2023.
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