Japan’s SoftBank has culled three of its most senior executives from its board, including the head of its $100bn Vision Fund, Rajeev Misra, after pressure from investors to improve its corporate governance.

In its most serious governance shake-up in years, the Masayoshi Son-led conglomerate said Mr Misra would leave the board alongside Marcelo Claure, its chief operating officer, and Katsunori Sago, its chief strategy officer.

Yasir al-Rumayyan, who represented Saudi Arabia’s Public Investment Fund, the largest investor in the first Vision Fund, will also leave the board. The group said the move would strengthen the role of the four non-executive directors on the board following governance lapses that came to light after the WeWork debacle.

In February, the US hedge fund Elliott built a $2.5bn stake in SoftBank and called for Mr Son to improve its governance and return cash to investors.

SoftBank made the announcement after its second-quarter results, where it revealed an improved performance at its two Vision Funds, which invest in technology start-ups, but a $1.3bn loss on bets it made on tech stocks.

Analysts said the loss, despite a global rally in tech stocks, underscored the complexity of the Japanese conglomerate’s investment strategy

The results were SoftBank’s first since the Financial Times revealed in early September that the Japanese conglomerate was the “Nasdaq whale” behind the purchase of billions of dollars’ worth of US equity derivatives that stoked a rally in big US tech stocks. 

Since the coronavirus-driven market turmoil in March, SoftBank has sold about $90bn of its holdings including stakes in T-Mobile, Alibaba, its domestic mobile business. Most recently, it agreed to sell UK chip designer Arm for up to $40bn to California-based Nvidia

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Using some of its cash pile which has now grown to nearly $50bn, the company has diversified into publicly listed tech stocks while its Vision Fund has been forced to make smaller bets on tech start-ups following massive writedowns on US property group WeWork.

As of the end of September, its investment in publicly listed tech stocks were worth $20bn, of which $3.4bn were in equity derivatives. While SoftBank was sitting on gains of about $4bn in early September from these trades, that turned to a $1.3bn loss as of Sept 30 mostly as short call options it made — as a hedge against the share price falling below a fixed price in the future — were booked as liabilities.

On Monday, Mr Son sought to downplay the risk from its equity derivatives trades, saying its bets on the likes of Amazon, Google and Facebook would help to offset the group’s reliance on Chinese ecommerce group Alibaba, which still account for roughly 60 per cent of its equity portfolio worth $292bn.

“People say we’re the Nasdaq whale, but the [derivatives] only account for 1 per cent of what we hold,” Mr Son said.

The tech stock rally boosted the group as a whole, with SoftBank posting a net profit of ¥627.5bn ($6bn) for the July to September quarter, well above analyst forecasts of a net profit of ¥150.3bn, according to S&P Global Market Intelligence.

The Vision Fund’s $75bn investment in 83 start-ups was worth $76.4bn, while its second fund was boosted by its $1.3bn investment in KE Holdings, the owner of online property platform Beike Zhaofang, which rose to $7.6bn following its successful listing in the US in August.

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SoftBank has changed strategy with its second Vision Fund, in the absence of new capital from outside investors, to make a series of smaller investments, as opposed to outsized bets on the likes of Uber and WeWork.

“The door is always open for a second and third fund, but we’re not very popular,” Mr Son admitted.

Mr Son said “every possible option was on the table” as SoftBank considers how to use its newly acquired war chest, although he put chances of a 100 per cent acquisition at just 1 per cent.

Shares in SoftBank rose 5 per cent on Monday ahead of the results, which came out after the Tokyo market closed. The stock is up 48 per cent for the year.

However, analysts said SoftBank still trades at a discount to the value of its holdings as its investment in liquid listed stocks adds another layer of uncertainty to its strategy.

“This is a lot of exposure to tech that we don’t know about everyday,” said Kirk Boodry, a tech analyst at Redex Holdings. “That’s why the stock has stubbornly refused to give up the big discount because people have to build in more risk when you are buying SoftBank shares,” said Mr Boodry, who writes on research platform Smartkarma.

Via Financial Times