Philippa Kaur

Source: Business – economist.com More

MUSIC FANS have had to get used to seeing stars perform via video-link, and the same was true of the big performance held on June 22nd to decide the future of Universal Music Group. Shareholders in Vivendi, the record label’s parent company, tuned in to the annual general meeting to chorus their near-unanimous approval of a plan to spin off Universal as an independent company. The label will launch as a solo act on the Amsterdam stock exchange in September.The vote marked the end of a noisy battle for control of Universal, which accounts for 30% or so of global recorded-music sales. In January Tencent, a Chinese media and e-commerce giant, increased its stake in the label to 20%. Earlier this month it emerged that Daniel Loeb, a New York hedge-fund billionaire, had built up a stake in Vivendi. Then on June 20th Bill Ackman, a rival hedgie, announced that his special-purpose acquisition company was to buy 10% of Universal for €3.5bn ($4.2bn), the biggest SPAC deal so far (and a particularly complex one). Vivendi will itself hang on to 10% of the label; the remaining 60% of shares will be distributed among Vivendi’s existing shareholders.The enthusiasm of Universal’s fan club is explained by the recent strength of the recorded-music industry, powered by streaming. Between its lowest point in 2014 and last year, worldwide revenues rose by 54%, to $21.6bn. Some two-thirds of these revenues accrue to the three “major” record labels: Universal, Sony and Warner. Only Warner is publicly listed; its share price has risen by 16% since its own initial public offering a year ago.Universal may strike investors as more appealing still. Its back catalogue of 3m songs, by everyone from the Beatles to Lady Gaga, is twice the size of Warner’s. Its slug of the recorded-music market, which reached 31% last year, is creeping up. That scale gives it more bargaining clout with streamers like Spotify. And at 17%, its operating-profit margin is five points higher than Warner’s and rising, according to Bernstein, a broker, which expects the spun-off company’s value to rise above the €35bn implied by the Ackman deal.What of the remains of Vivendi? “Black-box governance, an uneven track record of value creation and a motley crew of assets,” sums up Matti Littunen of Bernstein. He warns of share-price volatility in September when growth investors dump Vivendi stock. Some shareholders worry that Vincent Bolloré, who controls the group via a 27% stake, may try to tighten his grip with a round of share buybacks that would increase the relative size of his holding.For Universal, the question is whether it can keep the hits coming. Growth will slow as the streaming market matures. Rich countries are already nearing saturation point. In April Spotify raised its subscription prices for the first time, but it is unclear how much higher they can go (Mr Littunen points out that the price of CDs never rose after their launch in the 1980s). Music faces competition from new audio formats, notably podcasts, whose share of total listening has grown during the pandemic. And a growing share of streaming revenues goes to self-published artists, who—like Universal—have decided that they can make a better go of it alone. More

A FEW YEARS ago SoftBank rewrote the rules of venture capital (VC). The Japanese tech conglomerate was handing out cash left and right to startup founders. Leading venture capitalists held conferences to discuss how their industry could survive the SoftBank onslaught. As some of SoftBank’s biggest investments unravelled, culminating with the collapse in September 2019 of the initial public offering (IPO) of WeWork, an office-sharing firm, Valley veterans gloated. It seemed to be just another “tourist investor”, as one VC luminary dubs those who occasionally traipse through Silicon Valley looking to pick up sexy startups.Now SoftBank is being upstaged by another brash outsider. Between January and May Tiger Global Management, a New York hedge fund that also invests in private tech firms, ploughed money into 118 startups, ten times more than it backed in the same period in 2020, according to Crunchbase, a data provider. Its portfolio now counts more than 400 firms, including several behind some of the past year’s most eye-catching IPOs, for example Coinbase, a cryptocurrency exchange, and Roblox, a video-game maker. And, as it told investors in February, it is “searching for ways to make our investment flywheel spin faster”. Its new vehicle aims to raise an additional $10bn. That may be less than SoftBank’s gargantuan $100bn Vision Fund, but it is still an awful lot by VC standards—and the New Yorker may leave a more enduring mark on Silicon Valley than its deep-pocketed Japanese rival has.Similarities between Tiger and SoftBank are easy to see. Both were backers of Alibaba, before the Chinese e-merchant went public and turned into a global giant. VC types commonly describe both firms as “aggressive”, even “crazy”. Once each identifies a target, it pounces; investment contracts are issued in days, skipping lengthy due diligence, often at valuations well above those suggested by conventional VCs. Just as SoftBank would occasionally sign ten-figure cheques when founders asked for eight or nine, Tiger Global sometimes talks entrepreneurs into taking cash when they do not need it. “Even after they have already invested they send text message after text message, asking whether they can put in more money,” says one founder recently backed by the firm.Tiger Global abhors such comparisons. And it is indeed distinct from the Japanese group in important ways. SoftBank only got into tech investing in earnest a few years ago, having started out selling software, before moving into online services and telecoms. By contrast, Tiger Global has investing pedigree in spades. It is descended from Tiger Management, a hugely successful hedge fund founded by Julian Robinson, a Wall Street giant. It has been backing tech winners for nearly 20 years, both in China and, later, in America (with investments in, among others, Facebook). Over that period its funds have generated an average internal rate of return of 26% a year, twice that of comparable VC funds. Whereas Son Masayoshi, SoftBank’s messianic boss, calls all the shots at his firm, Tiger Global is no one-man show. And its partners eschew Mr Son’s embrace of individual founders based on a gut feeling in favour of a disciplined strategy centred on collecting a basket of firms in promising markets.There is another difference. Whereas the arrival of Mr Son left denizens of Sand Hill Road in Palo Alto, where Silicon Valley VCs cluster, quaking in their Allbirds, they appear remarkably unfazed by Tiger’s presence. Despite competing with Tiger Global for early-stage investments, many VCs consider it a force for good: a source of capital that helps their portfolio companies grow faster or start projects they may otherwise have forgone. Yet even if the New York firm follows SoftBank’s trajectory and pulls back, which could happen if interest rates rise, capital grows scarcer and the tech rally fizzles, three factors that have contributed to its success are here to stay.The first is the acceleration of dealmaking. Before the covid-19 pandemic, negotiations happened mostly in person, limiting the number of encounters. Meeting on Zoom and other video-conferencing platforms takes only a few clicks, allowing both founders and investors to talk to many more potential partners. In Silicon Valley, hardly a place known for foot-dragging, the common refrain these days is that “things have never moved faster.” Keeping up with Tiger Global and its fellow New Yorkers such as Coatue Management and Insight Partners is an important reason.Second, Tiger Global has tried to be more systematic in evaluating startups. Although the firm never asks for board seats, considering it a waste of time, it knows plenty about its investments, thanks to a growing array of ever better metrics with which to judge companies’ performance. It has also created its own early-warning network to identify promising targets. If a new online service takes off in one region, for instance, it may be time to put money in a similar firm in another location. Many VC firms could learn a thing or two from this approach. “We are a bunch of horrible investors,” grimaces another veteran venture capitalist. “More than half of us don’t even return capital.” This recognition is music to the ears of their put-upon limited partners.What the hand, dare seize the fire?Tiger Global’s final impact may be the most profound. It reflects a shift the balance of power between investors and entrepreneurs. Traditionally, investors had the upper hand. Startup founders pilgrimaged to Sand Hill Road, seeking not just money but valuable advice that the best VCs would provide. Competition from Tiger Global and other tourists has forced Californian VCs to offer more generous terms, monetary and otherwise. That in turn has made entrepreneurs themselves more confident. “It’s no fun to be an investor these days,” sums up the boss of a startup preparing to go public. The question for moneymen in Silicon Valley (which remains overwhelmingly male) is less what startup to back and more whether a startup lets you invest. Quite the paw print. More

TWENTY YEARS ago Leonard Lauder, the heir to the Estée Lauder beauty empire, observed that during economic downturns consumers liked to sweeten belt-tightening with small indulgences. He called it the “lipstick effect”, after one common pick-me-up. Disappointingly for Italy’s “lipstick valley”, a part of Lombardy that, according to Cosmetica Italia, an industry group, produces 55% of the world’s eye shadows, mascaras, face powder and lipsticks, consumers mostly shunned these little luxuries amid the pandemic recession. Whether because maquillage is less meaningful on grainy Zoom calls or contoured lips invisible behind face-masks, sales of Italian makeup-makers fell by 13% last year.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

THE ADANI GROUP underpins swathes of India’s economy. The family-controlled conglomerate’s businesses include airports, energy and natural resources, among other critical infrastructure. Its founder, Gautam Adani, is the world’s 14th richest man, worth some $72bn, according to Bloomberg. In terms of perceived ability to navigate India’s treacherous legal landscape and impenetrable red tape, he is in the same league as a fellow (slightly wealthier) billionaire, Mukesh Ambani.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

FROM CUISINE to carmaking, the Japanese way is meticulous. Yet with just over a month to go, the Tokyo Olympics remain anything but. Thanks to covid-19, and Japan’s sluggish vaccinations, it is unclear whether the games, originally due to be held last summer, will let spectators in—if, that is, the event takes place at all. Organisers insist it will. This is nerve-jangling for those hoping to peak at the right moment: the athletes, of course, but also the games’ financial muscle, its corporate sponsors. Though no backers have pulled out, some are privately calling for another delay. Asahi Shimbun, the games’ official media partner, has called the decision by the International Olympic Committee (IOC) to plough on “self-righteous”. What was supposed to be a golden opportunity to burnish brands has turned into a reputational minefield.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

HYBRID WORKING may be the future but that raises the question of how it will actually be organised. Will companies let their employees choose which days they come in to the office, and which days they are at home? And what about working hours? If employees do get a choice, they clearly need a strategy to maximise their visibility and minimise the stress. So this columnist has a few tips about which days you should opt to work from home.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

EVERY DAY, from 8am to 10pm, Son Masayoshi sits in his mansion in Tokyo doing what entertains him like nothing else: sizing up technology entrepreneurs and handing out money. Working from home has not slowed down the billionaire boss of SoftBank. At the Japanese group’s earnings call on May 12th Masa, as he is universally known, boasted of backing 60 companies in three months. Between January and March he doled out $210m a week.In the past four years SoftBank has poured $84bn or so into startups. It was the world’s biggest tech investor even before complementing a $98.6bn investment vehicle it runs, the Vision Fund, with a sibling that now contains $30bn. The 224 tech firms it has backed range from early-stage startups to established giants like ByteDance, owner of TikTok, a Gen-Z time-sink. Names like Plenty, Better and Forward imply missions to transform industries such as food, health and banking. Going by the valuations used by SoftBank and other venture-capital (VC) funds, the companies backed are collectively worth a colossal $1.1trn, according to PitchBook, a data provider.In spring 2020 SoftBank’s entire tech edifice nearly came tumbling down. As covid-19 spread and markets convulsed, SoftBank’s lenders took fright. Yields on its bonds surged. Investors wondered how—or if—Mr Son’s punts might weather the pandemic. His signature approach—big bets based less on spreadsheets than on “feeling the force” of a deal—looked riskier than ever. The initial public offering (IPO) of WeWork, an office-sharing firm, collapsed in late 2019, before the pandemic. Between February and March 2020, SoftBank’s share price plunged by over 50%.“Masa got close to the flame,” sums up a person close to SoftBank. But then the markets rebounded. The Federal Reserve was pumping in liquidity by supporting the market for junk-rated corporate bonds (Softbank’s debt is rated below investment-grade). SoftBank announced a sale of $41bn of its $252bn total assets to shore up its position.Now Mr Son is once again looking like a genius. Backing tech darlings proved the perfect strategy in the digitally accelerated coronavirus economy. His hunches have paid off. In just over a year SoftBank has gone from survival mode to spewing out cash like a giant ATM. The listing of Coupang, a South Korean e-merchant, reaped SoftBank $24bn in profits. Several more firms it has backed launched into an IPO market that turned red-hot last summer. Last month SoftBank reported an annual net profit of $46bn, the highest ever by a Japanese company. And more is to come: on June 10th Didi Chuxing, a Chinese ride-hailing firm one-fifth owned by SoftBank, said it would list its shares at a valuation of around $100bn. Despite a recent dip, SoftBank is worth a cool $126bn, $60bn more than at the trough in March 2020.As one big SoftBank shareholder puts it, after a spell like this, “they are untouchable.” Forgotten was the fact SoftBank’s bumper profits followed one of the largest losses in Japanese corporate history a year earlier. Forgotten, too, was a familiar criticism of recent years: that Masa, who is ultimately responsible for every yen spent by the group, picks hyped investments.Perhaps most forgotten of all is that SoftBank, having come to epitomise the tech wave, has occasionally acted in what some onlookers regard as questionable ways. It has eschewed common governance standards. It has become entangled in Europe’s two biggest corporate scandals in recent years: over Wirecard, a fraudulent German payments processor, and Greensill, a British supply-chain-finance firm now facing bankruptcy. And it has fused ever more closely with its founder.Created by Mr Son in 1981 to distribute computer programs, SoftBank first delved into internet services in the 1990s before reinventing itself as telecoms business. It bought the Japanese activities of Vodafone, a British mobile carrier, in 2006. In 2013 it bought Sprint, an American mobile provider. Along the way, in 2000, Mr Son paid $20m for a chunk of Chinese e-commerce upstart called Alibaba. That genius bet—Alibaba is now a global giant worth nearly $600bn—earned Mr Son kudos as a tech visionary. It also inspired him to transform SoftBank into an investment firm.In 2018 Mr Son spun off some Japanese telecoms assets and unveiled the Vision Fund. Not content with raising a typical $1bn-10bn VC vehicle, with the help of Rajeev Misra, a well-connected ex-Deutsche Bank financier and Mr Son’s key lieutenant, SoftBank raised $45bn from Saudi Arabia’s Public Investment Fund (PIF) and $15bn from Mubadala, Abu Dhabi’s sovereign-wealth fund. The Japanese firm put in $28bn of its own cash and assets, including a slice of Arm, a British microchip designer it had bought in 2016.Today SoftBank is best understood as having four main parts. The most valuable by far is the 24.85% stake in Alibaba, worth $144bn. The second part contains its remaining mobile businesses and Arm (with Arm heading for disposal). SoftBank’s two Vision Funds make up the third portion. Finally comes Northstar, an internal hedge fund set up a year ago. At the centre sits Mr Son. “It’s one company, the Masa show, that’s it,” sums up a former executive.Mr Son has two big ideas for the latest iteration of SoftBank. The first is to combine tech investing with financial engineering. In order to juice up returns, he has taken traditional VC and piled on leverage and complex structures. Second, Mr Son wants to create an over-arching tech “ecosystem” with SoftBank at its heart. Although SoftBank often owns only slivers of companies, he wants them to work together as if part of one group. The model is evocative of, if not identical to, the keiretsu—Japanese conglomerates such as Mitsubishi, with tentacles in finance, carmaking and lots besides, all helping each other.It’s complicatedStart with the financial gymnastics. At SoftBank’s highest levels, close to Mr Son, is a group of traders who worked at Deutsche Bank at a time when the German lender was famous for its appetite for risk-taking. Chief among them is Mr Misra, who heads SBIA, the part of SoftBank running the Vision Fund. “There are people at the Vision Fund whose entire raison d’être is financial engineering,” says a person who knows SoftBank well. “Complexity is their best friend—if they want to get from A to B they will go through all the letters of the alphabet to get there.” Mr Son appears to prefer their swashbuckling ways to those of old-school, more conservative VC types.It was such ways that brought SoftBank into the Wirecard fiasco. In early 2019 the German firm’s share price had fallen by half from its peak in late 2018 after reports of accounting irregularities. On March 28th 2019 Wirecard, by then a member of Germany’s blue-chip DAX 30 index, said it was suing the Financial Times over a series of investigative reports. At that moment another ex-Deutsche Bank trader at SoftBank, Akshay Naheta, chose to back the controversial company with the full weight of his employer’s reputation.On April 24th 2019 Wirecard announced that a SoftBank “affiliate” would invest €900m ($1bn) via a convertible bond. SoftBank also struck a co-operation agreement with Wirecard that opened the way for the payments firm to do business with other SoftBank companies, including those in the Vision Fund. The apparent validation of Wirecard by the world’s largest tech investor sparked a 21% rise in the German firm’s share price. It also bolstered Wirecard’s creditworthiness.The Wirecard deal had two unusual aspects. For a start, it turned out to be ephemeral. It later emerged that the €900m bond was subject to a refinancing exercise almost as soon as it was issued, reaping an immediate €64m profit. When Wirecard went bust in June 2020, after the FT’s reporting proved accurate, it was other investors who lost out.Another oddity was that SoftBank itself put no money into Wirecard. The “affiliate” fund that did was managed by SBIA, the Vision Fund overseer. Its investors included a small group of individual SoftBank executives aiming to make a personal profit, among them Mr Naheta, Mr Misra and Sago Katsunori, SoftBank’s former strategy chief, and one of Abu Dhabi’s sovereign-wealth funds. Wirecard publicised its agreement with SoftBank to financial markets, an association that for SoftBank carried reputational risk given the FT’s reporting on Wirecard. In the end the bulk of the immediate profit on the bond trade went to the affiliate’s individual investors, not to SoftBank or its shareholders. Wirecard’s later implosion confirmed the reputational risk that SoftBank had run. A person familiar with the matter also confirmed that the position of the SBIA-managed affiliate fund meant it stood to lose potential gains if Wirecard went bankrupt.One person in the know describes Mr Naheta and colleagues as putting a team to work to introduce Wirecard to certain Vision Fund portfolio companies, in accordance with a co-operation agreement between SBIA and Wirecard. These portfolio firms included stars of the tech world, whose tacit endorsements could have given the ailing German company a public-relations fillip—possibly boosting the SoftBank executives’ returns. In the event, Vision Fund firms avoided Wirecard owing to the FT’s reporting.Northstar is another example of Mr Son’s embrace of high finance. SoftBank’s newest unit looks like the exact opposite of Mr Son’s self-proclaimed desire to back exciting new firms and think in terms of an investment horizon stretching 300 years into the future. Northstar’s mandate seems to be to make short-term bets on public stocks that anyone with access to a brokerage account could buy or sell. One reason for this apparent departure from Mr Son’s guiding philosophy was that SoftBank had cash lying around. When the financial pinch of the early pandemic eased, some proceeds from the $41bn of asset sales could be reinvested. Most companies park spare cash in dull securities like government bonds. But that is not the Masa way.Instrumental to Northstar is Mr Naheta, who runs the unit. The 39-year-old was not the obvious pick to head a fund placing some of the world’s biggest stockmarket bets. After leaving Deutsche Bank he set up his own stock-picking firm, which seems to have focused on mid-cap stocks. Northstar, by contrast, has deployed huge sums of money, using SoftBank’s spare cash magnified by leverage. Last September investors started noticing that one market player’s tech-focused bets were so big (and structured in such a complex way) that it single-handedly caused some companies’ share prices to rocket. It was not long before Northstar was unmasked as the “Nasdaq Whale”. It lost $5.6bn on derivative transactions in the year to March 2021.In what appeared to be a letter in response to a freedom-of-information request by PlainSite, an investigative news outlet, the Securities and Exchange Commission said in March it was investigating SoftBank. A SoftBank spokesperson says the company is “not aware of any SEC investigation into the company’s securities trading and has not been notified of such”.Techno-ecologyIf Wirecard and Northstar exemplify Mr Son’s penchant for financial gymnastics, the story of Greensill’s rise and fall highlights the dangers of its ecosystem. SoftBank touts this as a competitive advantage. It regularly hosts get-togethers for all the founders whose firms it has backed. At its best the ecosystem can be a way for entrepreneurs to share ideas, bolster sales and boost prospects. But it can also lead companies in which SoftBank is a minority shareholder to feel the need to favour other parts of the ecosystem—even if this is not obviously in the interest of non-SoftBank investors or counterparties. SoftBank says its portfolio firms “have full autonomy to decide whether or not to work together”.For SoftBank Greensill could serve multiple purposes. Its Australian founder, Lex Greensill, had a well-rehearsed story about using tech to transform a stultified industry—Masa’s special formula. Greensill could be used for the benefit of SoftBank’s ecosystem. Its flagship product involved making loans to tide companies over after they issued invoices to customers but before they received payments. Greensill then repackaged these invoice-backed loans and sold them to investors. Credit Suisse, a bank, offered to pitch funds full of those bonds to clients, including family offices and corporate treasurers.Mr Son called Mr Greensill the “money guy”. Starting in May 2019 the Vision Fund invested $1.4bn in Greensill, turning its founder in a paper billionaire. Early last year the investment started proving its value. Some companies in the Vision Fund badly needed money. Firms like Katerra, a now-bankrupt American construction startup, found that building houses could not easily be made cheaper and faster with software. Oyo, an Indian hotel group, tried to expand too fast. After the WeWork debacle potential lenders steered clear of many Vision Fund firms. Greensill could help fill the hole. It lent money to Katerra and Oyo—or, rather, Credit Suisse clients did so indirectly. At times it was not in SoftBank’s interest for some of its portfolio firms to raise fresh equity: a lower valuation might oblige SoftBank to revalue its shareholding, generating a loss. Having Greensill on hand to extend loans to struggling firms proved useful in the end.This introduced potential conflicts of interest. SoftBank invested in the company that made the loan (Greensill) and in those it lent to (Katerra, Oyo and others). SoftBank invested over $500m in Credit Suisse funds. Greensill’s demise means its erstwhile backer can paint itself as one of its financial victims. A former SoftBank executive familiar with the matter says the situation was complex but that conflicts of interest could be managed. Credit Suisse, for one, is unimpressed. It is preparing for litigation against SoftBank. SoftBank says, “Any potential conflicts were appropriately managed in accordance with existing SBIA policies.”In late 2019 it seemed that SoftBank might take a different, less controversial path. SoftBank’s shares were trading at an estimated 70-75% discount to the value of the company stakes it owned, a historic low on that measure. Elliott Management, an activist hedge fund from New York, spotted an opportunity. Simplifying SoftBank’s structure, improving governance and returning money to shareholders were all time-tested ways to cause the conglomerate discount to narrow. The early-pandemic scare forced Mr Son’s hand. The $41bn of asset sales included most of SoftBank’s remaining American telecoms businesses. It sold Arm to Nvidia, a bigger chipmaker (the deal awaits regulatory approval). This streamlined the group somewhat. But it also accelerated the metamorphosis from a juiced-up telecoms utility into a complex investment holding company.Elliott’s prodding prompted some standard-issue governance improvements, such as appointing a woman to its all-male board and lifting the number of independent directors. As of June 2021, four out of nine board directors count as independents, up from three out of 12 in January 2019. Yet few observers think this resolves all potential problems. Since the start of last year SoftBank has suffered departures of highly experienced senior executives involved in legal affairs and compliance. A shared concern, according to a person close to some of them, was SoftBank’s culture. The firm is alleged to be permissive of conflicts of interest. The use of financial intermediaries was another concern.The latest person to announce her departure was Kawamoto Yuko, SoftBank’s first female director and a respected corporate-governance expert. She left after just a year to take a job as a commissioner at Japan’s National Personnel Authority, having reportedly disagreed with Mr Son over internal controls. On May 21st she published a description of governance at SoftBank, calling for more internal checks and more dissenting voices. She commented that it would be nice if the “obligation to dissent” or to disagree when necessary, was more widespread throughout SoftBank. SoftBank says that “constructive debate is the sign of an effective board” and that Ms Kawamoto agreed with governance changes including the appointment of a chief risk officer, which she had suggested. “She did not leave because of a disagreement, but rather because she was appointed to a government position,” a SoftBank spokesperson says.Under the existing governance arrangements, potentially problematic dealings can crop up. In return for facilitating the SoftBank affiliate’s convertible-bond deal, for instance, Wirecard and SBIA paid multimillion-dollar success fees to a German financier, Christian Angermayer, according to the FT. In another example, last summer Marcelo Claure, SoftBank’s chief operating officer, bought 5m shares of T-Mobile, a mobile operator, for around $500m. The purchase was funded by a loan from SoftBank. T-mobile’s share price has risen, and Mr Claure will keep the upside. But had it fallen, SoftBank would have had to find a way of get hundreds of millions of dollars back from its own executive. A SoftBank spokesperson says “the loan to acquire T-Mobile shares further aligns the interests of SoftBank shareholders with management. Under the terms of our merger agreement, SoftBank stockholders will receive over $7bn in T-Mobile equity if the company continues to perform and achieves a stock price of $150.”According to a person familiar with the Vision Fund, in at least one case an executive invested privately in an unlisted firm before SoftBank backed it, resulting in a large valuation increase. Deep Nishar, senior managing partner at SBIA, made a personal investment in Petuum, an artificial-intelligence startup founded in 2016, before leading the Vision Fund’s $93m bet on the firm in 2017. SoftBank’s policies let Mr Nishar keep the personal investment, which was disclosed to the Vision Fund’s limited partners. SoftBank says that “the investments in Petuum were disclosed, complied with the firm’s policies, and are relatively common practice in growth-stage investing.” Other VC firms call such a practice rare, and typically require executives to sell equity stakes in a company at cost to their firm in such situations.Another big question governance experts have wrestled with is where SoftBank ends and Mr Son’s individual interests begin. The boundaries are seemingly not always clear. Some of the firm’s activities are designed so an outsized share of profits flows to Mr Son relative to other SoftBank shareholders. Take Northstar. When the fund was set up, a third of the money invested was Mr Son’s; that brings him a third of the profits generated by Northstar. But the fund—and so Mr Son personally—benefit from belonging to SoftBank, 71% of which is owned by other shareholders. Its trades are either explicitly or implicitly backed by SoftBank’s balance-sheet.An obvious potential problem with a CEO having a personal interest in a particular division of his firm is that such a boss cannot neutrally allocate capital. Diverting cash to Northstar, in this case, can lead to its profits surging—and flowing in part to Mr Son. Northstar’s structure, including Mr Son’s personal stake in it, was approved by SoftBank’s board, which discussed the matter independently of Mr Son.Not so loanlySoftBank insists its governance and finances are sound. It has long had a policy of keeping enough money on hand to repay all its bonds that mature in the next two years. The asset disposals after last year’s crisis resulted in a less indebted group. SoftBank says it does not want to borrow more than a quarter of the value of the holdings (for example in Alibaba) that are often used as collateral for the loans.This is only a partial comfort to minority shareholders and other observers. SoftBank’s professed leverage cap is high by investment firms’ standards. Standard & Poor’s (S&P), a credit-rating agency, says it disagrees with how SoftBank calculates the ratio of credit to assets. SoftBank says that S&P calculates the ratio using its own methodology; it has revised its rating outlook for SoftBank from negative to stable. Some of the investment holding companies rated by S&P receive higher ratings than SoftBank even though their ratios after S&P’s adjustments are weaker than SoftBank’s. A SoftBank spokesman says that as it establishes a record of improvement this will help S&P’s ratio level. The company is “continuing our communication with [S&P] for upgrading”.Borrowing pops up across the company. The Vision Fund can borrow against companies it owns, which are themselves indebted. Mr Son is known to have pledged his own shares in SoftBank to fund activities related to the firm. Moody’s, another credit-rating firm, describes the resulting capital structure as fluid, complex and having limited transparency. Analysts gripe disclosure is patchy at best.Corporate governance, debt, SoftBank’s association with Wirecard and Greensill: neither is likely to be troubling Mr Son right now. The signs are he feels emboldened after surviving the corporate version of a 100-year flood. This carries risks, warns a SoftBank shareholder: “Masa and the senior team have been so successful, there is a feeling of ‘can everyone just leave us alone’…That could be dangerous if they think there is less need to take notice of corporate governance.” Investors were surprised by the news in May that instead of continuing to buy back shares, as they would like, Mr Son is tripling the size of Vision Fund 2, from $10bn to $30bn. Unlike the first Vision Fund, where outside limited partners sometimes acted as a brake, the new fund has no external investors.Masa seems to have been given even freer rein to feel the force. On June 10th the new fund led a $639m investment in Klarna, a Swedish fintech firm. That and other similar-sized bets are much larger than last year’s investments of under $100m. SoftBank has set up three special-purpose acquisition companies hoping to raise a combined $1bn or so, and then merge with startups—possibly including, SoftBank has said, some in the two Vision Funds. That would kick up still more potential conflicts of interest.The bull case for SoftBank is simple. It is an unabashed wager on tech-fuelled firms continuing their meteoric rise. It can thrive as long as investors are on hand to fund loss-making companies in the hope of future riches. For now, they are. But the recent IPO boom is petering out. Much of SoftBank’s record profit came with an asterisk: the share prices that helped generate it had already started falling back to Earth. Coupang has lost a fifth of its market value since listing. SoftBank and its shareholders are aware the party in the markets could come to an end, especially if central banks raise the ultra-low interest rates that make borrowing cheap and growth stocks appealing. Masa’s rebound last year was swift—but also lucky. The next stress test for SoftBank may not be far off. More