Masayoshi Son could be setting himself up for one of the most epic ponzi unwinds in history. And his juggling act between his personal fortune, SoftBank and SoftBank's Vision Fund is starting to paint a picture of him as Elon Musk on steroids.
The SoftBank founder has pledged 38% of his stake in the bank as collateral for personal loans from 19 different banks, including Credit Suisse and Julius Baer, according to Bloomberg. This brings Son's pledged stake up 36% from the levels it was at to start the year and triples his pledged stake since June 2013.
Son's pledged shares currently have a valuation of $9 billion.
Michael Puleo, assistant professor of finance at Fairfield University’s Dolan School of Business in Connecticut warned about the massive risk of a margin call: “It lets him monetize a large share of his wealth without foregoing influence over the firm. But there’s an elevation of crash risk. If the share price falls low enough, he could get a margin call and that could be pretty costly.”
Son has significant exposure to SoftBank and to its $100 billion Vision Fund. Shares of SoftBank have been under pressure lately after WeWork's planned $47 billion IPO was postponed and the company was rumored to be assigned new valuations between $10 billion and $20 billion.
SoftBank shares fell by 5% at one point this week, which knocked a cool $770 million off of Son's net worth. The stock is still up 27% this year, but that is likely a result of the company buying back 112 million shares of stock, valued at $5.5 billion, which it has been doing since February of this year.
Son has also leveraged his stake in the Vision Fund, which will amplify his losses or gains depending on how the fund's portfolio of unicorns and unicorn-wannabes, like Uber, fare. WeWork's recent IPO blowup will undoubtedly impact the fund's 62% return that the Vision Fund reported through March.
Robert Pozen, a senior lecturer with the MIT Sloan School of Management in Boston said: “There is a danger in companies where the founder calls all the shots regardless of whether there are loans. And when founders borrow a lot against their shares, they might be more tempted to make riskier decisions.”
As Josh Wolfe noted on Twitter this morning, the Vision Fund's track record and investor makeup has been anything but diversified. He wrote that of the $95 billion for the Vision Fund:
- $25 billion came from SoftBank itself
- $60 billion came from the Saudis and Abu Dhabi
- $10 billion came from others (including $3 billion reportedly from Son himself)
He also noted that of the 80 investments the fund has made:
- 5 had IPOs
- 4 are below IPO price
- Only 1 (Guardant Health) is up
And as if levering himself, levering SoftBank and levering the VisionFund wasn't enough, SoftBank's compensation also involves debt. Son reportedly loaned himself $3 billion to invest in the first Vision Fund, which further increases his risk if the entire clusterf*ck begins to unwind.
The loan was reportedly swapped for equity in the fund and will generate profits for Son when deals make money. Conversely, they will generate losses for Son when deals don't work out. Vision Fund employees receive base salaries and bonuses, but also only get payouts when profits are booked. Meanwhile, SoftBank is also planning on lending as much as $20 billion to its employees to buy stakes in a second venture capital fund. Son is expected to account for half of the employee pool.
Son, who saw $70 billion wiped from his fortune during the dot-com crash, told shareholders at the company's June meeting that SoftBank's investment portfolio could grow 33-fold to $1.8 trillion over the next 20 years.
We'll take the "under" on that estimate.