Fourth, and perhaps more importantly for my purposes here, I want to spend some time on the fund’s structure. For each 38 cents they put into the fund’s equity, outside investors are required to put 62 cents into preferred units of the fund. On the other hand, Softbank itself invested $28 billion in equity but nothing in preferred. 

That means when the fund reaches $100 billion, Softbank will have put up only 28% of the capital but will own 50% of the equity. Adding in management fees and carried interest, its 28% of the capital may give it 60-70% of the gains. 

Even the private equity industry – with its willingness to take risk – has traditionally shied awa from piling debt on technology companies (although less so lately). Softbank doesn’t hesitate to lever its tech investments. 

The preferred units will pay a 7% annual coupon. Lending money to a tech fund at thata modest rate apparently is part of the price demanded of the LPs for an opportunity to invest in the fund’s equity. I can imagine the sales pitch about how lucky the LPs are to get a chance to provide leverage for this own investment, but doubt I’d be convinced. 

Eoin Treacy's view

Here is a link to the full report.

These look like very favourable terms for Softbank and based on its investments, so far, we can conclude it is not a value investor. If history is any guide the creation of such funds are often better for the manager than the investor. 

Softbank has more than doubled from its early 2016 low and is now testing its previous peak. A sustained move below trend mean would be required to question medium-term scope for additional upside.  

The fund is now rumoured to be pursuing iRobot which has already rallied impressively over the last couple of years.