,Investment strategy: A woman walks past a logo of the SoftBank Group in Tokyo. The company SoftBank is now one of the largest investors in the highly undervalued Swiss pharmaceutical giant Roche. — AFP
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UNICORNS used to be the almost exclusive focus of SoftBank Group Corp. But now hedge funds are entering chief executive officer Masayoshi Son’s backyard, chasing these billion-dollar plus tech startups in droves.
As the competition heats up, can SoftBank retain its edge in venture capital? Could it change its investing style to stock picking or perhaps even activism?
The questions arose when it became known SoftBank had built a US$5bil (RM21.12bil) stake in Roche Holding AG, as Bloomberg News reported.
It’s a curious move. SoftBank is now one of the largest investors in the highly undervalued Swiss pharmaceutical giant, whose Genentech division is a pioneer in the data-driven development of drugs with the aid of artificial intelligence.
Combined with smaller stock investments made earlier, the Japanese venture capital (VC) giant could well become a market mover in the sector – the new biotech whale. Is that what SoftBank wants to do?
Might Masa Son be trying activism? Is this a campaign to get Roche to unleash its pent-up value?
Son could have gotten a few tips from Paul Singer’s Elliott Management Corp. Last year, the venerable activist hedge fund launched an aggressive campaign to nudge SoftBank itself to boost share price via asset sales and share buybacks.Big investment in Roche is seen as a curious move
The way Roche is set up, however, will make that difficult for SoftBank. The drug maker has a dual-class share structure with the founding families owning 50.1% of the voting class, while crosstown rival Novartis AG holds one-third.
More likely, SoftBank’s move is evidence that it is pivoting to another investment strategy.
Son’s second Vision Fund still writes checks to startups every day, but hedge funds are crossing over to private markets at greater speed.
In the second quarter, Tiger Global Management was doing 1.3 deals a day, making it the world’s most active venture capitalist, according to CB Insights. SoftBank ranks fifth.
Other big hedge funds, from Third Point LLC to Marshall Wace LLP, are looking to buy unlisted companies, too.
In fact, there’s so much demand from hedge funds, sovereign wealth funds and pension funds, who largely stayed in the public markets in the past, that startups are turning to Wall Street banks, instead of traditional venture capital funds, to broker financing deals.
Hedge funds are aggressive financiers. The likes of Tiger Global can arrive at negotiating tables with multi-million-dollar cheques in hand, and they do not even demand a board seat. All they want is exposure.