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SoftBank’s debt obsession

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Re: SoftBank’s debt obsession

#41

Post by onetimemanytime »

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…

As others said, if 9.7% was guaranteed enough, who would lend Softbank at 7%? Banks aren't that stupid, they'd buy S&P (feedback loop)

Even 7% is an extremely good return rate.

Softbank does these things because they have access to a lot of easy money.

Re: SoftBank’s debt obsession

#42

Post by kgwgk »

soared wrote: post #32
DSingularity wrote: post #30

Earlier quoted context omitted.

I think you are ignoring a lot of factors that come into play when you are managing assets on the scale of 70B$. It is easy to sink 1000$ in a minute into an index fund using Robinhood. It is not as easy when you are talking numbers on this scale.

> Oversimplified napkin math for fun:

We are having fun!

Re: SoftBank’s debt obsession

#43

Post by whatok »

ThrustVectoring wrote: post #38
loeber wrote: post #11

Earlier quoted context omitted.

> 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.

A serious economic downturn is likely to sink the fund entirely anyhow, so you might as well optimize for the case where that doesn't happen. This is one of the serious principle-agent problems in investing in general - equity holders and management aren't incentivized to preserve value for creditors, so they take more risk than is ideal for the overall capital structure.

Depending on how you define a "serious economic downturn". The one thing funds that invest in private companies has it that they can mark-to-model rather than mark-to-market. If it's not a prolonged downturn, private funds can much more easily ride out downturns than funds that invest in public securities and have to actually mark things in a realistic manner. Given the longer lockups of most PE funds, investors are also along for the ride.

Re: SoftBank’s debt obsession

#44

Post by whatok »

kenneth wrote: post #3
polskibus wrote: post #2

I wonder how are the downside-protecting elements and that unusual debt based financing structure affecting Uber and other large companies that SoftBank invests in. Is it possible that Uber collapses because of the 7% yearly coupon that SoftBank fund must produce ?

There is no risk of SoftBank's financial situation causing a collapse at one of the companies in which they hold a minority stake. The worst that could happen is they don't fund Uber the next time they need funding.

There's no chance that a collapse is immediately caused but if SOFTBK reaches a point where they closed off from capital markets, one of their best ways to raise cash is to sell their stakes in some company. I don't think it could happen with Uber just given the ownership breakdown but it could absolutely happen with another one of their stakes.

Re: SoftBank’s debt obsession

#48

Post by Simon_says »

User23 wrote: post #22
spelunker wrote: post #16

Earlier quoted context omitted.

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

Pretty close actually. https://www.nerdwallet.com/blog/investing/average-stock-mark... Edit: Anyone want to clue me in on what the downvotes are for here?

The key is consistently.

The S&P 500 returns are wildly variant, and the 9~ % only comes from averaging a century of growth. Whole decades might see a loss.

Re: SoftBank’s debt obsession

#49

Post by spelunker »

User23 wrote: post #22
spelunker wrote: post #16

Earlier quoted context omitted.

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

Pretty close actually. https://www.nerdwallet.com/blog/investing/average-stock-mark... Edit: Anyone want to clue me in on what the downvotes are for here?

From that article:

"While 10% might be the average, the returns in any given year are far from average. In fact, between 1926 and 2014, returns were in that “average” band of 8% to 12% only six times."

So if you are investing on borrowed money with a guaranteed payout of 7% a year, that is not good for you.

Re: SoftBank’s debt obsession

#50

Post by JumpCrisscross »

adrianN wrote: post #34
smallgovt wrote: post #14

Earlier quoted context omitted.

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.

How would an answer based on fundamentals even look like? Nobody can predict the future.

> How would an answer based on fundamentals even look like?

Start with demographics. Layer on productivity growth and you have a first-order approximation of national productivity. Figure gross margins and from that net margins, as well as average corporate tax rates–boom, you have the economy's profitability. Estimate a pay-out rate and you get a high-level return estimate. It's very approximate, but it's theoretically solid for any closed economic system. (Cf: natural resource inputs are not properly accounted for.)

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