Side Letter: Vision Fund’s downsizing; Anti-greenwashing guide; Credit’s PE pocket shift

SoftBank's Vision Funds are set to shed staff after a second consecutive quarter of mammoth losses. Plus: tips for cutting through the greenwash from an impact pioneer and LPs are no longer allocating to credit from their private equity buckets. Here's today's brief, for our valued subscribers only.

Just happened

SoftBank’s Son: planning to slash Vision Fund headcount (Source: SoftBank)

SoftBank’s slowdown
SoftBank‘s troubled Vision Fund series posted a second consecutive quarterly loss on Monday as a rout in the public markets continued to take its toll on the Japanese tech conglomerate. Its Vision Funds posted a ¥2.93 trillion ($21.7 billion; €21.3 billion) loss for the period and the Vision Fund Public Stock Index posted a 31 percent decline for the quarter ended 30 June, outpacing the 22 percent loss recorded by the Nasdaq Composite Index. Here are some other key takeaways from the results:

  • Vision Fund I held 80 investments, including 23 public portfolio companies, valued at $66.35 billion as of 30 June and with an original investment cost of $68.09 billion. Vision Fund II, which doesn’t hold any third-party capital, held 269 investments valued at $37.24 billion, and with an original investment cost of $48.22 billion.
  • Investment activity has slowed to a fraction of last year’s pace as the Vision Funds seek to exercise greater caution. SoftBank deployed just $600 million in the quarter ended 30 June, compared with $20.6 billion in the equivalent period last year.
  • “We have to control ourselves even though we sometimes feel that we want to invest in the market that has tanked because we want to make sure that we won’t lose big,” chief executive Masayoshi Son noted on an accompanying earnings call.
  • The losses mean SoftBank will look to slash headcount for its Vision Funds by an unspecified number. “Unfortunately, since our investment amount is smaller… [resource] for new investment should be smaller,” Son said. “Then you can’t have too many investment teams. So, Vision Fund headcount may need to be reduced dramatically.”

Authentic impact
There’s been a lot of noise about greenwashing of late, so how exactly can investors separate authentic impact investment from lip service? That’s a question our colleagues at New Private Markets put last week to Jim Roth, former co-founder of impact pioneer LeapFrog Investments and current managing partner of Zamo Capital, a specialist investor that backs emerging impact firms (registration required). Roth’s four-point plan to cut through greenwash is well worth a read over on NPM, but here are the highlights:

  • Trust one’s gut and ask whether an investment or a strategy smells right.
  • Use the one system of measurement that looks like it’s the most widely applied, rather than your own in-house methodology.
  • Ensure the fund backs companies where there is co-linearity between profit and purpose; in other words, whether the conventional financial incentive aligns with the intended positive externality.
  • Check whether the GP works with management teams to set targets and actively manage against those targets.


Credit where it’s due
Investments into private debt funds are increasingly coming from LPs’ broader credit allocations, rather than PE pools, according to research from placement agent Rede Partners. Following interviews with more than 50 LPs based in Europe, North America and Asia, Rede found that while broader credit allocations accounted for 35 percent of the capital being allocated to private debt funds in 2018, by 2021-22 this reached 66 percent.

A declining number of LPs are committing to private debt funds from their PE buckets, falling from 24 percent in 2018 to 7 percent today. When LPs have previously allocated to the asset class from a PE bucket, the requirements for a higher absolute return often limited the number of strategies they could choose. As more LPs move towards using a broader credit allocation, they will have greater flexibility to back new and innovative credit strategies.

The research also found there remains significant demand for additional allocations to private credit. A huge 82 percent of LPs said they are increasing their allocations to private credit while just 4 percent are looking to decrease allocations. However, private credit remains a small aspect of the portfolios for most LPs, with 72 percent saying total allocation is less than 5 percent. Nine percent of LPs surveyed, however, have more than 21 percent of their assets under management allocated to the asset class.

Dig deeper

Name: Pennsylvania Public School Employees’ Retirement System
HQ: Harrisburg, US
AUM: $44.4 billion
Allocation to alternatives: 60%

Pennsylvania Public School Employees’ Retirement System has confirmed a €95 million commitment to TDR Capital V, according to materials from their latest investment committee meeting.

Founded by Manjit Dale and Stephen Robertson in 2002, TDR Capital is a mid-market private equity buyout firm headquartered in London with administrative offices in Jersey and Luxembourg. TDR has raised four funds, all employing the same investment strategy, and has cumulatively invested approximately €10.6 billion in capital across 23 platform portfolio companies since inception.

This commitment would represent PSERS’ first investment with TDR Capital, an example of the dominant exposure which buyout investment maintains in PSERS’ private equity portfolio.

TDR Capital launched their fifth fund in September 2021, seeking €4 billion in investor capital. The previous fund in the series had received €3.52 billion in commitments, oversubscribed to its €2.5 billion target.

PSERS currently allocates 15.9 percent of its investment portfolio to private equity, comprising of $12.1 billion in capital. The $76 billion public pension has a target allocation of 12 percent to the asset class.

PSERS’ recent private equity commitments have tended to focus on North American vehicles with a variety of sectors and strategies.

For more information on PSERS, as well as more than 5,900 other institutions, check out the PEI database.

Today’s letter was prepared by Alex Lynn with Andy Thomson.