About $ 75 billion of the Vision Fund comes from external LPs such as sovereign wealth funds from Saudi Arabia and Abu Dhabi. Each of these engagements is divided into two parts:
- Common where LPs receive a percentage of all positive investment returns.
- Preferred where LPs receive the 7% annual coupon on invested capital plus a percentage of all positive investment returns.
- Each LP outside the company has a 60/40 split between traditional and preferred, resulting in a coupon of over $ 40 billion.
SoftBank created the coupon as a marketing tool and knew it would be difficult to get investors to bite on such a large fund. However, it has also been assumed that the coupon can be paid entirely through distributions – something that has not yet crystallized.
- Of the $ 1.6 billion in coupon payments so far, only $ 400 million comes from distributions (Flipkart and Nvidia)
- the rest comes from capital calls.
- The result: LPs from outside essentially pay off themselves, the SoftBank group pays them even more (in percentage terms, as it only has traditional equity) and Vision Fund isn I do not really invest $ 100 billion.
Vision Fund was 71% invested by the end of the second quarter and has indicated it is now between 80% and 85%. The remaining amount is to be used for follow-up investments and for the payment of the coupons.
So what happens if Vision Fund can not meet its future coupon obligations through distributions and if there is not enough committed capital available? Does it take a loan? Does the SoftBank Group join the balance sheet? Does it draw from the still theoretical Vision Fund 2? A strong spokesman declined to comment.
This may sound like a Chicken Little scenario due to the recent Vision Fund issues with Uber and WeWork, but it is not impossible.
- Let's say the coupon is 85% invested. Payments of approximately $ 1.2 billion are made twice a year. Over the life of the fund, including previous payments, it is over $ 11 billion. Added to this is the annual management fee of 1% – also on  invested  capital that was not committed – and the fund must generate revenues of at least $ 120 billion just to break even.
- And that does not include a possible extension of the fund term by two years, which is admissible in the fund documents.
Vision Fund continues to regard the prospect of illiquidity as ridiculous. Especially given how comfortable it is for companies like Slack and Guardant Health to be in the black. But it might help to explain why fundraising for Vision Fund 2 is in the mud, making Masa Son Mea Culpas and the biggest price hike for credit default swaps in the past week.
Conclusion: A 300-year vision may not be compatible with a 10-year fund.