So Many Opportunities He’s Opening Up Another US$100 Billion Fund

Let’s start by rattling off some favourite tips.

In Sydney this week, the country’s ‘top’ investors named companies like Sensata Technologies Holding PLC [NYSE:ST] and Qantas Airways Limited [ASX:QAN] as some of the best investments right now.

But you could argue these are just the best of a subpar group.

Rarely would you find professional stock pickers say they like anything outside a top 500 index. It’s not because they don’t want to invest in small growth companies. It’s because their size physically limits them.

Money managers that have more than 100 million to invest need volume. They can’t jump in and out of small stocks even if they are significantly undervalued.

Because they have to buy huge stakes, their activity alone could push some small-caps from undervalued to grossly overvalued.

So they’re stuck looking for a group of fairly priced stocks with few real opportunities coming their way. You’ve probably heard me say it before, size affects performance.

The more cash you need to invest the harder it becomes to outperform. Even Warren Buffett, the Oracle of Omaha, has found his kryptonite. Add a few hundred billion to Buffett’s portfolio and watch returns fall.

Meanwhile in other parts of the world, there is one investor with massive size. But he’s seeing so many opportunities that he wants to open another US$100 billion fund.

So let’s follow this thread and see where it leads…

When Ma met Son

Jack Ma, a young start-up founder, walked into the office of Japanese telecom, SoftBank, in the late 1990s. He wasn’t there to strike a mobile deal for his employees. He was there to find an investor.

He had heard the founder of SoftBank, Masayoshi Son, was interested. With millions in cash left over from his telco business each year, Son spent a lot of his time looking for potential investments.

At the time he was really digging eastern technology

And Ma’s soon to be famous Alibaba, was just what he was looking for. Son had heard US investment bank, Goldman Sachs, had already put up US$5 million. So he decided to quadruple his stake.

Son gave Ma US$20 million.

Before his Alibaba investment, Son was already extremely wealthy. With it he became the richest man in Japan. Today, Son’s Alibaba investment is worth around US$138 billion.

That puts Son’s average annual return on the stock at an insane 63.4%!

One fund is not enough

Son is not ready to rest on his laurels yet, though. From 2012–17, he’s continued to be an active investor in companies all over the world. From Chinese ride hailing start-ups to semiconductor firms, Son buys them all.

SoftBanks top investment since 17-05-18

Source: CNBC

[Click to open new window]

In Son’s most ambitious plan, he created the Vision Fund. It’s a technology fund that aims to buy companies with truly revolutionary products and business models.

Most of the cash in Son’s Vision Fund is sovereign wealth money and from SoftBank’s back pocket. But it seems one US$100 billion fund is not enough. He’s seeing so many large opportunities that he wants to launch another. Bloomberg writes:

Masayoshi Son, the CEO of SoftBank Group Corp. and the architect of the world’s biggest technology fund, promised that the second fund will be launched soon.

“Vision Fund 2 will definitely come, it’s just a matter of when,” Son said at a Wall Street Journal event in Tokyo. “Sometime in the near future.”

Son didn’t give a specific time-line or scale. The first Vision Fund, which debuted last year and raised more than $90 billion, has invested about 40 percent of its money so far, Son said. While making bold predictions is typical for the billionaire, talk of a second massive pool of money could be a sign that he’s getting closer to closing the first one.

The Financial Times reported last week that SoftBank and Saudi Arabia’s sovereign wealth fund, the two main Vision Fund investors, were close to reaching the goal of amassing $100 billion. Daimler AG, three Japanese banks and Oracle Corp. co-founder Larry Ellison and Bahrain’s sovereign wealth fund will make up the final $7 billion needed to reach that threshold, the newspaper said, citing unidentified people briefed on the negotiations.

When it comes to finding investments, Son invoked Yoda.

Son’s been in the investment game a long time. Many times he’ll pick up key insights within minutes.

Like Yoda, ‘you can just feel it,’ Son said.

Every time my team does due diligence, they do it for one, two, three months and do a deep dive. But my first insight in the first few minutes is sometimes more meaningful than detailed calculation. You do it so many times, you don’t even need to think.

How you can join in the spoils

Son doesn’t discriminate. He considers investments from all over the world. But a large meaningful chuck of his money is in Asia. Son owns large stakes in Chinese insurance company, ZhongAn, and Indian online payments firm, Paytm.

These are just two of many among Son’s Asian investments. And with opportunities abound, I wouldn’t be surprised if he adds even more to his Vision Fund in due time.

Of course there’s an opportunity here for you too. Best part is you don’t even have to leave the ASX.

Right here, there are a myriad of companies that stand to profit from Asia’s rise. A huge growing consumer base, a thriving tech industry, and potentially more economic reforms — what’s not to like.

It’s why in my brand new advisory service, Wealth Eruption, I’ve identified five ASX stocks that I believe have significant upside Asian exposure.

If you want to learn more about my service, click here.

Your friend,

Härje Ronngard,
Editor, Money Morning

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Port Phillip Publishing, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.

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