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SoftBank’s debt obsession

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Re: SoftBank’s debt obsession

#11

Post by loeber »

soared wrote: post #7

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you coul…

> Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index.

This is totally untrue. Volatility in the short term -- one serious year down -- can sink you.

No sane actor treats S&P's average rate of return as the risk-free rate.

Re: SoftBank’s debt obsession

#12

Post by ericjang »

soared wrote: post #7

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you coul…

Is there a strong reason as to why a 9.7% annualized return on the S&P is a correct assumption we should make about the future?

I feel like in the 21st century, a lot of folks have come to put a lot of faith in the "stocks in the long run" mantra.

But any stationary effect in the markets can be arbitraged away. If 9.7% long-term returns were guaranteed, wouldn't everyone just borrow 30-year loans on margin at 5% interest rate and invest it in S&P?

Edit: agree with sibling comment. If one loses 27% in the first year and makes 9.7% annually after that, they would be operating at net loss. So even if long-term gains were assured, volatility can still make investing on borrowed money unprofitable.

Re: SoftBank’s debt obsession

#13

Post by ASpring »

soared wrote: post #7

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you coul…

Aren't all of the 2.7% gains wiped out by inflation?

Re: SoftBank’s debt obsession

#14

Post by smallgovt »

ericjang wrote: post #12
soared wrote: post #7

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you coul…

Is there a strong reason as to why a 9.7% annualized return on the S&P is a correct assumption we should make about the future? I feel like in the 21st century, a lot of folks have come to put a lot of faith in the "stocks in the long run" mantra. But any stationary effect in the markets can be arbitraged away. If 9.7% long-term returns were guaranteed, wouldn't everyone just borrow 30-year loans on margin at 5% inte…

I've asked this question many times in many different formats and have never gotten a satisfactory response that's grounded in fundamentals.

I think it ultimately comes down to people trusting history to repeat itself.

Re: SoftBank’s debt obsession

#15

Post by samstave »

There has been a lot of talk (and speculation) in the past regarding Softbank being 1. the avenue for Saudi Investment of their (est.) $Trillion++ as the hedge against oil's future and 2. The apac version of HSBC/DeutscheBank laundering schemes.

Anyone have any speculation on the veracity of these rumors?

Basically, WRT the debt risks that Softbank is taking, it suggests that they don't care about the risks, because they need to launder+invest the monies they can regardless as quickly and with as much volume as possible to legitimize and profit...

Re: SoftBank’s debt obsession

#16

Post by spelunker »

soared wrote: post #7

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you coul…

If you think the S&P consistently returns ~9.7% per year every year, you are mistaken.

Re: SoftBank’s debt obsession

#17

Post by r2d2-c3po »

soared wrote: post #7

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you coul…

'very little risk' - I think standard deviation of return on S&P is something like 15%-20%...I wouldn't define a strategy with a buffer of 2.7% very little risk when the standard deviation is that high...

Re: SoftBank’s debt obsession

#18

Post by gammateam »

The article plays on the cultural anathema to the word debt in the following ways:

It mentions specific interest rates only once, which are paid to a subset of investors in the vision fund. It briefly clarifies how none of this is an insane level of debt, just a large number.

It then spends the rest of the article talking the existence of bonds and interest bearing securities, with no distinction of what they are except "hey look, a DEBT security"

It mentions how it is as large as the public debt of a nation state, after qualifying the alarm with subsets of a subset of one of the entity's balance sheets.

By this part of the article, we are actually talking about the Softbank entity's "operating basis", which was a big pivot away from what 2/3rd of the article was talking about which was the Vision Fund doing all the cool investments.

Just.... be discerning.

The general counterpoint would be that it is great that a fund structured this way is trying to back illiquid private equity. It is nice that investors get the opportunity to have exposure to the hottest deal flow on the planet, with an entity that can push for liquidity.

Re: SoftBank’s debt obsession

#19

Post by User23 »

ericjang wrote: post #12
soared wrote: post #7

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you coul…

Is there a strong reason as to why a 9.7% annualized return on the S&P is a correct assumption we should make about the future? I feel like in the 21st century, a lot of folks have come to put a lot of faith in the "stocks in the long run" mantra. But any stationary effect in the markets can be arbitraged away. If 9.7% long-term returns were guaranteed, wouldn't everyone just borrow 30-year loans on margin at 5% inte…

Taxes certainly complicate that, but most people do what you're describing. People with moderate and even high net worth (that is, in financial assets) still use mortgages because it's better to borrow at 5% instead of liquidating an asset that is returning 9.7%.

Re: SoftBank’s debt obsession

#20

Post by flyinglizard »

loeber wrote: post #11
soared wrote: post #7

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. They get $70B and have to pay 7% fixed annually. S&P rate of return on average is 9.7%. Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. With $70B you coul…

> Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. This is totally untrue. Volatility in the short term -- one serious year down -- can sink you. No sane actor treats S&P's average rate of return as the risk-free rate.

I was under the impression fund money is typically locked for around 10 years or so.
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