Sideways: Fundraising – $100 billion is the new black
It seems $100 billion is the new benchmark fundraising target for firms looking to make an impact.
October saw SoftBank announce that it has secured a commitment of $45 billion from Saudi Arabia for a new technology fund and will aim for a total to invest of $100 billion; then Carlyle said that it too is looking to raise $100 billion in the next few years.
The question is how effectively they will deploy all this money in an era of very low or negative interest rates and stock valuations that appear stretched after years of steady appreciation.
It is something of a chicken-and-egg conundrum, with poor returns in mainstream markets making investors susceptible to pitches for new solutions, even when there is no obvious path to higher gains.
Fundraising seems to be the easy part for a technology firm that can talk a Saudi royal into handing over $45 billion (SoftBank) or a private equity manager with a reasonable track record (Carlyle).
Both members of the new $100 billion club have leaders with positive records to stress as part of their sales narrative. Masayoshi Son, CEO of SoftBank, cultivates an image as a visionary billionaire with a strong aggregate investing record. Big wins like his early investment in Chinese internet giant Alibaba are balanced by less impressive bets, such as the purchase of US telecom firm Sprint on the mistaken assumption that it would be allowed by regulators to merge with T-Mobile and compete more effectively with AT&T and Verizon.
Masayoshi Son, SoftBank
Son has been playing up the crazy genius aspect of his public persona in recent appearances at technology events. In response to Silicon Valley investors who wonder how he will deploy the $100 billion in the new SoftBank Vision Fund, Son has been stressing that he believes in the ‘singularity’ – or the concept that computer super-intelligence will soon overtake the capacity of the human brain.
This leads him to muse that $100 billion might not be enough to take advantage of the attendant technological investment opportunities, without identifying any tangible examples.
This sort of talk plays well in Silicon Valley, where company founders and investors love to indulge in bold public thinking about the transformational potential of technology without devoting too much time to the duller aspects of implementation – or indeed the investing implications of a world run by robots.
It also serves to mask the fact that much of Son’s success is built on swift reaction to old-fashioned market opportunities, such as his £24.3 billion purchase of UK-based smart-phone chip designer ARM Holdings a few weeks after this summer’s vote for Brexit.
ARM’s stock had rallied after the Brexit vote, so the purchase was not purely driven by the slump in sterling that followed the decision to leave the European Union, but this certainly sweetened the deal for Son. His ability to move quickly in a period of market confusion helped to close the deal.
Carlyle’s founders Bill Conway, Dan D’Aniello and David Rubenstein built their business on a combination of fostering connections in Washington and exploiting leverage to finance buyouts and other investments.
Like Son, they have had their failures, including botched attempts to build successful hedge funds. Their overall record is strong enough to make the current goal of raising $100 billion over the next four years viable, however.
The main threat to Carlyle’s plan to both raise the money and deploy it profitably is the potential for an end to the multi-decade bull run in the debt markets that is behind every great fortune in the private equity industry.
Of course, Son’s singularity may be upon us before debt financing for buyouts dries up, so perhaps potential investors should simply pick the $100 billion fund that suits their tastes and hope for the best.