“Regulatory filings show SoftBank bought nearly $4 billion of shares in tech giants such as Amazon.com Inc., Microsoft Corp. and Netflix Inc. this spring, plus a stake in Tesla. Not included in those disclosures is the massive options trade, which is built to pay off if the stock market rises to a certain level and then lock in gains, the people said. SoftBank bought a roughly equal amount of call options tied to the underlying shares it bought, as well as on other names, according to people familiar with the matter. It also sold call options at far higher prices. This allows SoftBank to profit from a near-term run-up in stocks and then reap those profits by unloading its position to willing counterparties.
Investors pay a small premium to buy options, giving them exposure to a much larger notional amount of shares. In SoftBank’s case, the roughly $4 billion in options generated an exposure of around $50 billion, according to the people familiar with the matter.
SoftBank is best known for its $100 billion Vision Fund, which invests in startups including Uber Technologies Inc. and TikTok owner Bytedance. But in July its founder and CEO, Masayoshi Son, announced a new unit to invest in public markets, similar to a hedge fund in its scope and tactics.
Part of that unit includes a $555 million, 12-year fund, one-third of which is Mr. Son’s personal money. It adds another tentacle to SoftBank’s globe-trotting, asset-spanning investment ambitions. Mr. Son, often given to bouts of whimsy, hid a clue in the name: 555 in Japanese is pronounced “go, go, go.”
SoftBank only recently emerged from a serious rough patch. The company’s bet on office landlord WeWork soured, requiring SoftBank to bail it out. Concentrated investments in ride hailing startups were hammered when the pandemic shut down travel. It reported a $9 billion loss in the fiscal year ended March, its worst year ever.
Softbank’s shares plummeted in March and the company announced a major shift in strategy. It would unload more than $40 billion in legacy assets. That number is now more than $50 billion and will include the sale of its stakes in T-Mobile US Inc., Chinese e-commerce giant Alibaba Group and SoftBank’s Japanese telecom unit.
Much of that cash was originally earmarked for share buybacks and debt redemption. But SoftBank paused the buyback plan it announced in March after its shares rocketed higher. Mr. Son said SoftBank is in no hurry to repurchase more of its roughly $47 billion in bonds, since the company has enough cash to cover redemptions for the next two years, and bondholders don’t particularly want to sell.
It is a departure for Mr. Son, who is known for long-term bets on young tech firms, including his $20 million bet on Alibaba in 2000. The fund will instead invest primarily in highly liquid, publicly traded companies, making extensive use of derivatives and leverage to boost returns.
Some SoftBank shareholders are uneasy about the new stock trading unit. They invest in tech stocks themselves, and are perplexed that SoftBank is now aiming to do the same thing, according to SoftBank investors. Mr. Son, who has a one-third stake in the stock-trading fund, promised to make up a portion of shortfalls in the fund if it lost money at the end of its 12-to-14 year life, according to the company.
When questioned about the stake at a virtual investors’ meeting last month, Mr. Son said he wanted to take risk and get upside, according to two people familiar with the gathering. “I’m not a bonus and salary guy,” he told the listeners, one of those people said.”
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