Introducing SoftBank, the world’s largest private equity firm

SoftBank is run by one of Japan’s more eccentric, visionary chief executives. Its arrival into the world of private equity has been suitably dramatic.

It is said that Masayoshi Son, the billionaire founder of Japanese technology giant SoftBank, delights in being ahead of the curve. One PEI staffer – who cut his teeth reporting on technology stocks in Japan – remembers his enthusiastic adoption of Twitter, possibly before his chief executive peers were even aware of the platform.

Until last year SoftBank was best known for adventurous moves in the technology and telecommunications sectors, in which Son has built up a business now boasting a ¥9.55 trillion ($84 billion; €79 billion) market cap. For instance, just weeks after the UK voted to leave the EU, Son announced the company's largest-ever deal to buy British chip designer ARM Holdings for more than $32 billion.

In the last few months Son has planted two flags firmly in the front yard of the private equity industry. The first and most eye-catching of these was the creation in October of the giant SoftBank Vision Fund, a tech-focused private equity vehicle with a target size of $100 billion launched in partnership with the Public Investment Fund of the Kingdom of Saudi Arabia. Last week Son announced that the company is “very much in the last phase of the Softbank Vision Fund closure”.

To put this figure in perspective, the listed US giants of private equity – Blackstone, Carlyle, KKR and Apollo – have between them $96 billion in uncalled private equity capital or “dry powder”, around half which – $43 billion – is at Blackstone’s disposal. A comparison of SoftBank’s fund with others focused on the tech sector suggests it will be operating in a stratosphere of its own.

Son’s second move, while on a different scale, is no less surprising. This week his group announced the proposed $3.3 billion acquisition of New York-headquartered investment manager Fortress Investment Group.

Fortress has not raised a private equity vehicle since its 2007-vintage $5 billion Fund V, according to PEI data. It is, however, heavily engaged with a range of private credit, real estate and traditional asset management strategies. With the acquisition, SoftBank will acquire a firm with 1,100 staff managing $70.1 billion-worth of assets on behalf of more than 1,750 institutional clients and private investors worldwide. As an aside, Fortress’s Japanese real estate business is a top performer.

There are some interesting connections at the personnel level. Leading the Softbank Vision Fund is Rajeev Misra, the firm’s head of strategic finance, who had a brief stint working under Fortress’s co-chairman Pete Briger when the latter was running its real estate and credit businesses. Though Fortress will not be directly involved in the Vision Fund, and will continue to be run by Briger and his fellow senior executives as an independent business, Son has signaled Fortress’s investment expertise could be shared to help make its Vision Fund a success.

Under SoftBank’s ownership, Fortress co-founder and co-chairman Wes Edens and Briger can get back to running a funds business without the headache of being a public company. And a focus on funds appears to be the aim as the pair, alongside co-founder Randy Nardone, have each committed to reinvest 50 percent of their after-tax proceeds from the transaction into Fortress-managed funds and vehicles, in addition to equity securities of SoftBank and SoftBank-managed funds and vehicles.

Fortress will also benefit from teaming up with a truly global business, which will be able to help the firm expand in to geographies such as the Middle East. Nizar Al-Bassam and Dalinc Ariburnu, the duo from advisory firm FAB Partners, which arranged the Fortress transaction and have been cited as instrumental in the raising of Softbank’s Vision Fund, have previously played a role in connecting SoftBank to Gulf investors.

The transaction is still subject to approval by Fortress shareholders, certain regulatory approvals and other customary closing conditions, but it is expected to close in the second half of 2017. And while it may have come out of left field, the deal will likely give one of the world’s private equity stalwarts a new lease of life, while adding to the credentials of one of its newer powerhouses.