#40 – The Chronicler

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Transcript

STEPHEN CLAPHAM: Hi, welcome to the Behind the Balance Sheet podcast where we meet leading investors and commentators and educate ourselves about the world of investing and the world. Our mission is to remove some of the mystique around investing and improve our understanding of what makes a successful investment or indeed an unsuccessful one. Our goal is to inform, educate and entertain. We hope you enjoy this and every episode.

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STEPHEN CLAPHAM: All one word dot com forward slash btbs for behind the balance sheet lano Barber is the former editor of the Financial Times and probably the only journalist on the planet to have interviewed presidents Obama Trump and Putin under his stewardship the FT metamorphosed from a newspaper into a digital subscription business and was sold to the Japanese company Nikkei for 44 times earnings and as editor Barber fully backed up our former guest Dan McCrum in his investigation of Wirecard.

STEPHEN CLAPHAM: I was delighted when Lionel agreed to come on the show to talk about his new book, Gambling Man, a biography of Massa Son, the founder of SoftBank and creator of the $100 billion Vision Fund. I’ve long been curious about Son, who, for three days at the peak of the dot-com boom, was the richest man in the world.

STEPHEN CLAPHAM: Barber spent three years writing his meticulously researched book for which he interviewed 150 people, including Bill Gates and Warren Buffett, as he explains in our discussion. Some of his stories, including his description of Son’s inner sanctum, are just marvelous.

STEPHEN CLAPHAM: I really enjoyed our conversation, and I’m sure you will too. Thank you for coming on. Welcome to the podcast. I’m really excited to talk to you. And you’ve written this amazing book about Masa Son. And you dedicated the book to Kita-San, who I guess is the chairman of Nikkei.

LIONEL BARBER: He was the man that did the deal. From Nikkei to buy the Financial Times for $1.3 billion. By the way, that’s 44 times earnings. And he was my counterpart at Nikkei, an inspirational figure. And I did 14 trips to Japan as editor in four years. And I decided he is the man I want to dedicate the book to.

STEPHEN CLAPHAM: And did you love Japan?

LIONEL BARBER: I did. My twin brother actually is married to a Japanese lady, was 40 years. And He lived in Japan for five years during the bubble in the late 1980s when the real estate market went through the roof.

LIONEL BARBER: But I never really, I never went to Japan until 1996. And then I made a number of visits and obviously latterly when the Nikkei bought the FT. And I became much more interested. I kind of, my twin brother and I have a rather competitive relationship. So I decided that I would specialize in America. In the West while he specialized in the East.

STEPHEN CLAPHAM: And what did you like about Japan?

LIONEL BARBER: It’s so subtle. I mean, you think that you understand a little bit and you probably only get 2%. I mean, I don’t speak the Japanese language. I always used an interpreter. But what I did do was look at people, listen to the intonation. Do you know what the worst thing that can happen to you in Japan if you’re in a conversation, Stephen?

STEPHEN CLAPHAM: I have no idea.

LIONEL BARBER: If they laugh, because then they’re embarrassed. You’ve really screwed up if they laugh.

STEPHEN CLAPHAM: Oh, I see. That’s interesting. I mean, my experience has been restricted to people falling asleep.

LIONEL BARBER: Well, the jet lag is appalling, and I’ve done that almost the same. But I also think that the Japanese are very this is a great civilization. Yeah. I mean, it goes back centuries. They were an they’re an island nation, the archipelago. They were shut off from the rest of the world for centuries and only really modernized in the late 19th century. And that, by the way, is when the Japanese Empire really took off.

LIONEL BARBER: They became the greatest power in Asia. You know what happened in the Second World War. But that’s where the Koreans came to Japan in the turn of the century. And that’s where Marx’s… Masa’s father and grandmother came. Grandfather came in 1917. Grandmother came around 1927 or so. They met. And so they’re Koreans in Japan. That’s very important to understand Masa’s psychology.

STEPHEN CLAPHAM: But what made you write a book about Masa Son? Because, I mean, you like politics. And so I’d assume that the book you wrote after the diaries would have been a political book. What drove you to write this book?

LIONEL BARBER: Simple adage in journalism, follow the money. If you are looking at an empire like SoftBanks, where they created a $100 billion Vision Fund, the richest man in the world, Massa was, for three days in the height of the dot-com bubble in 2000. But he’s a mystery. So I figured, one, there’s got to be.

LIONEL BARBER: Lots of great stories if there’s that amount of money involved. Two, this is a story of our times. It’s about riding this technological wave that has transformed our societies. So for those reasons, and the sort of cracking the mystery of Masayoshi Son, that was my motivation.

STEPHEN CLAPHAM: In your diaries, you wrote that Son had agreed to do lunch with FT, which I always love, and he shook hands on it in front of… Google’s Larry Page, but he evaded it. You wrote, he understood that his power lay in his mystique, hence no formal interviews. And you visited Tokyo twice, only for him to cancel meetings. I mean, was he just maintaining the mystique?

LIONEL BARBER: Well, I did six trips to Japan, and twice he said he was too busy. That was between 2022 and 2023. I mean, initially, when I said I was going to do the book, SoftBank was distinctly unenthusiastic. And they didn’t really want this book. And go to your point, Stephen, he is someone who wraps himself in mystique.

LIONEL BARBER: He doesn’t open up. He’s very, very private. He’s got these incredible properties around the world. When I said I was going to write about them, I mean, they almost had collective heart attack. He’s somebody who on the surface is modest.

LIONEL BARBER: But in private, when he talks about himself, compares himself to Napoleon and Genghis Khan. And then he has I mean, it’s incredible. So unraveling the mystery was was very important to me and finding out the man’s motivation. What makes is he a great investor? Is he just lucky? We’ll probably talk about that.

STEPHEN CLAPHAM: Yeah, I think we’ve probably got that conclusion already, but a bit of that. The book’s amazingly well-researched, and you interviewed an amazing cast of characters, from Sawne himself, through Bill Gates, Michael Moritz, Bill Gurley, and even Warren Buffett, over a two-year period. So, I mean, it took you a huge amount of time.

LIONEL BARBER: Yeah, more than three years. Yeah, I interviewed more than 150 people, a lot of people in America, a lot of people in Silicon Valley. And yes, Warren Buffett did agree to have an exchange about this extraordinary trip that Massa paid.

STEPHEN CLAPHAM: It’s amazing to read that Warren Buffett had met Son in his office in Omaha on a Sunday. To my mind, Warren Buffett and Massa Son are polar opposites. Mr. Buffett hates that. He’s for a long time held a cash pile over $100 billion. Son used to have almost twice that in debt.

STEPHEN CLAPHAM: I mean, SoftBank still has about that in debt. And in spite of having much, much smaller cash flows in Berkshire, Buffett’s letters are full of wisdom, whereas Son sometimes comes out with, I mean, just things you cannot, it appears to talk nonsense. My question is, why do you think Buffett agreed to meet with Son? And why did Son imagine that Warren Buffett would invest in the Vision Fund? I mean, it’s just like… Ludicrous.

LIONEL BARBER: There might have been a little bit of curiosity on the part of Warren Buffett, but you’re absolutely right. These men belong to different galaxies. Warren Buffett invests in real businesses. Like Gillette, like Burlington, the railway stock.

LIONEL BARBER: But he is not averse to making big financial bets. If you remember what he did with Goldman Sachs and the banks, where that was a very astute, quick tactical investment. Now, he’s all he. Arguably missed the tech wave. I mean, they only invested in Apple late.

LIONEL BARBER: Masa has invested, and this is where the contrast is, right at the beginning. I mean, he invested in Yahoo in 1995. He invested in Alibaba. At the end of 1999. By the way, if he hadn’t made that bet, he really would have gone down fully. So you’re definitely right.

LIONEL BARBER: I think it was polite, but remember, Stephen, the meeting lasted barely 20 minutes. Minutes in his office. He took them for a little tour around Berkshire Hathaway. He said, I’m just making a few pennies, you know, on the cash pile.

LIONEL BARBER: And then Massa made one pitch for the Vision Fund. And then he tried to get Warren Buffett to invest in Sprint. Which was in real trouble, by the way. And Buffett basically said, I don’t do regulated businesses like that. No, thanks very much. And bye-bye.

STEPHEN CLAPHAM: No cash flow. But it just seemed a bizarre thing for Son to try. And I wondered what the psychology was behind it. What did Buffett say? Because you interviewed Buffett.

LIONEL BARBER: I did. I mean, Warren Buffett, he was quite careful about what he actually said. But there’s an important element in this book that Massa tried to emulate part of the Warren Buffett strategy, which is it’s all to do with permanent capital. If you’ve got insurance companies with a lot of cash, you can then use that to leverage.

LIONEL BARBER: For other investments. Now, Warren Buffett’s done it to a degree, but nothing like what Massa had in mind. And that’s why Massa looked at buying Swiss Re. And I think he looked at one or two other insurance companies.

LIONEL BARBER: Think he looked at I hear he even looked at Aviva all right what about that yeah but but this was all about getting a huge amount of capital on which you could leverage then investing bets and when these insurance companies that didn’t come off that’s why he went to the Gulf to get money permanent capital from the Saudis and then the Emiratis which was 60 billion by the way and you.

STEPHEN CLAPHAM: Why did Warren Buffett agree to be interviewed by you? Because he’s famously difficult to get at. Is it just because you’re a former editor of the FT and you’re writing the book about Son?

LIONEL BARBER: Well, I go to Sun Valley, the Allen & Company media conference every year. I’ve seen Mr. Buffett there. And I know people who know Warren Buffett very well. And I very politely asked him. Whether I could have an exchange about Masa-San, and I’d gathered that there’d been this visit. So we had a brief verbal exchange, and then he said, if you send me an email, and by the way… He doesn’t look at email. He has an assistant.

STEPHEN CLAPHAM: Yes, Debbie.

LIONEL BARBER: Debbie, yeah. And so I sent the email, and then I got a response. So I was able to use that material. But I also did interview somebody else who was in the meeting in Omaha. So I got a second account.

STEPHEN CLAPHAM: Oh, interesting. I mean, you’ve interviewed everybody. So what do people like Moritz and Gurley, the great….

LIONEL BARBER: They hate him.

STEPHEN CLAPHAM: Why do they hate him?

LIONEL BARBER: Because… They think he’s, you know, a money-grubbing, aggressive, you know, he was the one who turned their party upside down. He destroyed value. He threw money at all these founded companies. He wasn’t really interested in growing a company and working with management. He threatened them.

LIONEL BARBER: He said, if you don’t invest, and then he invested in the competitor like Lyft and Uber. Yeah. I mean, he sent them crazy. Bill Gurley said it was just an. Absolute nightmare dealing with them. And also then Masa employed people in the Vision Fund who were very arrogant.

LIONEL BARBER: They were former traders and they kind of walked into the Silicon Valley offices. Vaping, putting their feet on the desk. And I talked when I made a number of visits to Silicon Valley to the venture VC firms, and several of them said, you know, these guys blowing smoke, I mean, what is this? But when you’ve got $100 billion in your coffers, it tends to make you a little bit arrogant.

STEPHEN CLAPHAM: Yes, well, I can see there’s no shortage of arrogance.

LIONEL BARBER: Hubris as well. Yeah.

STEPHEN CLAPHAM: Massa’s a fascinating character, isn’t he? I mean, I thought the most curious snippet in your book was he missed his own wedding and then the ceremony was rescheduled for a week later and he was late for it. I mean, what kind of a person doesn’t he?

LIONEL BARBER: He’s very, very focused on things. And in this instance, this was when he was a student at Berkeley, California. And he, via a nuclear… Particle physicist who I tracked down, by the way, when he was 92.

LIONEL BARBER: And I found Dr. Forrest Moser, and he described this incident, they were developing this speech synthesizer. And NASA was so focused on the deadline that he completely forgot that he had a wedding that afternoon. And suddenly somebody said, you know, have you not got something important? Oh, my God.

LIONEL BARBER: And he gets in his secondhand Porsche and roars down the hill from the space sciences lab at Berkeley. And, of course, he’s several hours late and his bride is literally left waiting at the altar where there’s a registry office. So, you know, the next week he was still working on the product. So that’s what he is. He’s incredibly, you know, details focused, obsessive.

STEPHEN CLAPHAM: The other thing I thought was really funny was Nikesh Arora, one of his team, beat him at table tennis. And he then employed a former Japanese Olympian player to instruct him. I mean, is this an obsession with winning and winning everything?

LIONEL BARBER: Absolutely. Stephen, you’ve identified one of the key driving things. He constantly talks about being number one. And I have this story, which is my favorite sports story, that Henry Kravis. The co-founder of KKR, Kovac Kravitz-Roberts, the private equity billionaire, invited Masa, who’s a very, very keen golfer, to play at Augusta, the famous course in America.

LIONEL BARBER: And Masa, I don’t know whether he shot par, but he did very well and beat Kravitz. And Kravitz said… You’ve obviously played this course before. And he said, no, I haven’t. He said, no, you have. Clearly, you know all this and that.

LIONEL BARBER: And Masa then said, no, I’ve played it in my basement because he has an artificial golf course in his basement in central Tokyo. He also, by the way, can take a 75-mile fastball in baseball. That’s the other sport. Yes. So he’s very competitive. Very competitive. And a ruthless negotiator.

STEPHEN CLAPHAM: Really, because it strikes me that he never negotiates. He just, you know, whatever you ask him for, he’ll…

LIONEL BARBER: Or he’ll pay more. I mean, Herman, a ruler of improbable, went to Tokyo and he was in search of 50 million pounds for an investment and he came back with 500 million. He didn’t know what to do with it. I mean, Massa, he always… I mean, he… People say he pays over the odds. He looks at it differently. He says, well, what’s this asset going to be in three or four years’time? He has a slightly different time frame.

LIONEL BARBER: And he pays more because it’s a status symbol. I can afford to pay. And you mentioned Nikos Aurora, the Google, ex-Google executive, the number four there, the chief revenue officer. Masa hired him. I mean, ridiculous. Nikesh told me about this scene in the Japanese restaurant where they’re negotiating his pay package. And it’s all being done on a napkin. And zeros are being added with brackets. It ended up $320 million.

LIONEL BARBER: Guaranteed over four years with $80 million a year. Now, can you imagine in terms of businesses? For Japanese, they weren’t earning anything like that. So that was a bit of a culture shock inside SoftBank between the Japanese side and the American or Indian recruits.

STEPHEN CLAPHAM: And was there a split there?

LIONEL BARBER: It’s definitely a cultural split and some annoyance. And, of course, Nikesh was… Supposedly being lined up as successor. But then Masa suddenly said, actually, I think I’m going to do another few years. And Nikesh had to go. And I think the Japanese were relieved to see the back of him.

STEPHEN CLAPHAM: And relieved to see the back of the cash outflow.

LIONEL BARBER: $320 million.

STEPHEN CLAPHAM: $80 million a year. I mean, it soon adds up, right?

LIONEL BARBER: It certainly does.

STEPHEN CLAPHAM: Do you think anybody’s worth that?

LIONEL BARBER: $80 million a year guaranteed. Unsure.

STEPHEN CLAPHAM: Because there is that instance I wrote about a few weeks ago about Brian Nicol moving from Chipotle to Starbucks and 27 billion dollars of value being transferred and it’s kind of hard to argue that some of these people aren’t worth I mean he was paid 100 million dollars. Partly the money left on the table. But I mean, I can imagine that in a Japanese context, it just looks ludicrous.

LIONEL BARBER: It really does. I mean, the people don’t earn anything like that. And it’s seen as excessive. It’s seen as rude. And we haven’t really talked about this, but people do look in Japan, the Japanese business establishment at SoftBank and at Masa with great suspicion. Yeah. Because what are they making?

LIONEL BARBER: They’re not. They’re not. Creating ceramics. They’re not doing steel. They’re not doing cars. It’s not a real thing. It’s sort of financial engineering. And that’s not entirely fair to describe SoftBank because clearly he did, and I described this in detail, how he created a mobile phone business, you know, to take on the incumbent NTT.

LIONEL BARBER: He did buy Vodafone Japan, amazing leverage deal, which turned out fine. They got the exclusive. Deal to distribute the Apple IPhone, and he created real value. But the story, Stephen, is that that bores him. What he really wants to do is be at the tables investing.

STEPHEN CLAPHAM: So I saw him speak at a Goldman Sachs conference in, I think it was 2016. It was an amazing conference. I don’t know why they invited me. I mean, they had Michael Bloomberg speaking, Howard Mark speaking, and Massa speaking. He stood up and he talked about the internet of things and trillion connected devices.

STEPHEN CLAPHAM: The Internet of Things, I mean, it’s not even 10 years ago. I mean, I haven’t heard anybody talk about the Internet of Things for quite some time. Well, you know, obviously, if we get autonomous vehicles, they will be connected.

STEPHEN CLAPHAM: But this was, you know, the Internet of Things seems to me like you can change the color of your light bulb from remotely, from, you know, why anybody would want to do that remotely, I don’t know, or why anybody wants to change the color of their light bulb, I’m not sure. But he did this amazing presentation.

STEPHEN CLAPHAM: About this other stuff. And he said, you know, I went to California and I gave Steve Jobs the idea for the IPhone. That’s what he said in a public forum. I may misrecall some part of it. But in your book, you say he claims to have designed IPhone emoticons. I mean, do you believe this?

LIONEL BARBER: No, I think, Stephen, I mean, I went through that chapter in, I don’t know, I think I rewrote it. Eight or nine times, at least. Because I was trying to make sure I didn’t libel him. And I was trying to give him some justification because he’s like Ronald Reagan with the Star Wars system. Seeing is believing. He has this vision. He believes it to be true. He believes other things to be true, even if they’re not.

LIONEL BARBER: Now, did he exaggerate? He certainly was close to Jobs. But the idea that he… Developed or had the concept of the IPhone. I think that’s an exaggeration. Did he have the idea of turning essentially the iPods into something else around the IPhone? Yes. But was it the full deal? No. So I think. My answer to your question is that he takes 20%, 30% that might be true and then turns it into 120%.

STEPHEN CLAPHAM: I mean, he won’t listen to this.

LIONEL BARBER: You’re safe. It’s okay. I mean, what would you like me to say, Steve? Yeah.

STEPHEN CLAPHAM: But his first business partner, Dr. Moser, who’s now 92.

LIONEL BARBER: 95 now.

STEPHEN CLAPHAM: 95 now. Oh, that was three years ago. He’s still going.

LIONEL BARBER: And I’m still in touch with him.

STEPHEN CLAPHAM: And he said he lied and cheated me. I mean, this is not a trustworthy person.

LIONEL BARBER: No, and I think that’s a, I mean, I describe it as sort of original sin. I mean, I couldn’t believe what I was hearing. And I must tell you a little story because I went to Berkeley. I haven’t told this story, but I thought I was going to find Forrest Moser, the first business partner. I thought I’d go to Berkeley, find out Masa’s academic records.

LIONEL BARBER: And I was just told this was just around COVID was just lifting. Well, they’re private, so we’re not going to give you his academic records. And I didn’t hear anything from Forrest Moser. I’d sent him an email and everything. And I went back to my hotel in the afternoon.

LIONEL BARBER: And I looked at myself in the mirror and just said, you’re a schmuck i mean you you you you’ve got nowhere you think you’re some hot shot reporter you’ve got nothing so i then thought well what am i going to do so i thought maybe linkedin so i looked on linkedin and i found somebody called Todd Moser who is in software in in the Bay Area and i thought that must be his Son So I sent him a LinkedIn message.

LIONEL BARBER: Tom Moser got back and said, oh, I thought my dad had gotten in touch with you. And I said, can you give me Todd Moser’s, Forrest Moser’s telephone number, his home number? So I rang up. Hello. And I said, hello, it’s Lionel Barber. I’m the former editor. And I got it. Oh, I thought I’d sent you an email. No, no. I said, well, can I come around?

LIONEL BARBER: He said, if you come around, he said, before you come around, give me two words to describe Masayoshi-san. And I thought. I’ve got to get these right, otherwise no interview. So I said, can I have four? And he said, yeah, sure. So I said, would-be visionary, reckless gambler. There was a silence on the phone. He said, how about just crook?

LIONEL BARBER: Because he really, he felt that Masa had gone behind his back and sold the rights to distribute. The speech synthesizer to Japanese companies without his permission. He was selling chips, national semiconductor chips that didn’t exist at prices he’d invented.

LIONEL BARBER: Now, when I put this to Masa, he was a bit embarrassed and he just said, no, no, no, no, no, no. It was just a misunderstanding. And, you know, so there is, that’s quite a revealing story, actually. And I think I’m on solid legal grounds here.

STEPHEN CLAPHAM: His private company, MIC, went into liquidation in 1998 with liabilities of $107 million. This is like 18 months before he’s the richest man in the world.

LIONEL BARBER: Is that MIC or MAC?

STEPHEN CLAPHAM: Oh, I don’t know.

LIONEL BARBER: He had two private companies.

STEPHEN CLAPHAM: But one of them went into liquidation. It did, yeah. What was that all about?

LIONEL BARBER: Well, this is, again, it’s very complex. I got into this through my researcher. I had a Japanese-Korean researcher, and we found some of the original filings. And he was using his private companies. To essentially warehouse part of the loss-making acquisitions that he’d made in the United States.

LIONEL BARBER: So investors were not getting the full picture. Now, he would say, well, these were my companies. They’re separate. But of course, Was there a relationship between the private companies and the publicly listed company? Were they using collateral shares from the publicly listed company to try and use them to borrow?

LIONEL BARBER: And also the MIC was used for the share, giving out shares to his employees. So it was exposed, there were whistleblowers, which again… Nobody’s written about for 25 years. We looked at the original Japanese.

LIONEL BARBER: And, you know, the funny thing is that the same kind of problems arose 25 years later with this crazy NASDAQ whale story where Masa had his own in-house hedge fund and he was trading. Himself alongside SoftBank and the North Star. Crazy.

STEPHEN CLAPHAM: The thing that puzzles me with that is in the UK, if you’re the director of a private company goes bust, then you’ve got a problem being director of anything, let alone a major public company. And you imagine in Japan that would have caused enormous loss of face. And I just was puzzled as to why this is. I mean, you’ve obviously exposed this. It’s been swept under the carpet until now. How has he managed to keep a lid on all that?

LIONEL BARBER: Well, one reason, Stephen, is that by 1998, his investment in Yahoo had come good. So suddenly something that he’d put in about $100 million was worth, I don’t know. I mean, think of the dot-com bubble was going. Oh, yeah, sure. So it was worth. I don’t know, 3 billion or something. And he’d also gone public on the Tokyo Stock Exchange. So it was a big success story. So this was just quietly ignored.

LIONEL BARBER: You know, he’s been lucky on timing.

STEPHEN CLAPHAM: Well, you do need a bit of luck to build the 200th largest company in the world from nothing. You know, I’m… torn between admiration and shock. Is that, I mean, he’s a very polarizing character, isn’t he?

LIONEL BARBER: That makes two of us. I mean, you know, I felt it was important to give a rounded portrait. And, you know, we can deal with the negative bits in a minute. But the fact is, you know, he came from next to nothing. He wasn’t quite as dirt poor as he claims. I mean, he did spend his first three or so years. And the edges of a slum near a railway station in Kyushu in western Japan.

LIONEL BARBER: But his father was pretty soon quite rich in the post-war years, and he went and made his first money, by the way, in pig breeding. And he was a bootlegger. I interviewed his father, by the way, when he was 87 in the family home. And there’s this old, you know, gambling casino man, pachinko parlor owner. And he made a lot of money.

LIONEL BARBER: So Masa was not as poor. He was actually, and he was treated certainly like a princeling. But when he came back from America to Japan, he couldn’t get a bank loan. Because he was Korean. So you have to say, if you think where he came from, and he went into a new business of software distribution, it’s a pretty amazing story.

LIONEL BARBER: On the other hand, he’s reckless. He’s destroyed value. He is very creative. The people quoted in the book, Bill Gates, Bobby Kotick, who sold his company Activision. Blizzard to Microsoft for, I don’t know, what was it, more than 50 billion, I think.

LIONEL BARBER: 68 billion, I think. I mean, Bobby thinks that Musk is a bit mad sometimes, but incredibly creative figure. So there are plenty of people who give him credit. But I also interviewed Jerry Yang, the co-founder of Yahoo. I mean, Yang’s views are positive, but also, you know.

LIONEL BARBER: It’s a bit off the rail sometimes. And, you know, people straightforwardly have said to me he’s addicted to gambling.

STEPHEN CLAPHAM: And Yang’s known him for a long time, of course.

LIONEL BARBER: Since 1995, yeah.

STEPHEN CLAPHAM: So he would have known him the best of all those people.

LIONEL BARBER: Well, Bill Gates knew him, I think he first came across him in about 1983. Or two. Oh, really? So Gates, and I interviewed him for an hour in Sun Valley in 2022. And he spoke very warmly of him. But did Bill Gates put his money in the Vision Fund? No.

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STEPHEN CLAPHAM: The Vision Fund, I mean, it’s just like the most bizarre vehicle. I mean, when I read about it, I thought that, you know, I mean, you know, the Financial Times usually get these things right, so you trust what it says. I couldn’t believe my, I couldn’t believe what I was reading.

STEPHEN CLAPHAM: So the first question is, why did he appoint Rajiv Misra, who was a debt structuring guy who’d managed to, I mean, he did him a massive favor in getting him the debt that allowed him to buy Vodafone Japan. But, I mean, he had no track record, no credibility as a venture capital investor. He wasn’t even an equities guy.

LIONEL BARBER: Well. The appointment took everybody by surprise, but I think there were a couple of things in play. One is that Masa did owe him a lot for that Vodafone Japan deal, but he also knew that he was looking at Misra for access to capital.

LIONEL BARBER: And I mentioned that he initially looked at insurance companies, and then he got this money from the Gulf. Well, of course… Rajiv was the man who was partly the introducer to it. He was the facilitator for that because he knew he had this great Deutsche Bank traders network or people who’d worked there.

LIONEL BARBER: And therefore, Masa.

LIONEL BARBER: There’s actually a Saudi, Nizam Al-Assam, who was an Ex-Deutscher bank trader who then created a boutique bank in London. And he was a very important facilitator. And he knew Rajiv. So I think that was part of the reason. And then the other was, you know, look, Rajiv knows a lot about leverage.

LIONEL BARBER: And as you said, SoftBank Vision Fund was a leverage play as much as it was some investment play.

STEPHEN CLAPHAM: I mean, it was just like completely the wrong structure. I mean, you know, you’re investing in cash-hungry businesses. The last thing you want to do is promise your investors a dividend on half the capital. I mean, it just makes no sense.

LIONEL BARBER: Well, that was the price of getting the capital was to assure them that they would have that coupon of 7%. 7%.

STEPHEN CLAPHAM: But they were getting a coupon out of their own capital. I mean, it’s just nonsensical. I mean, this is what amazes me. So he starts off, he thinks he’s going to raise $20 billion. He goes to Qatar, he gets nothing, and he comes out and says, oh, I’m not shooting high enough. I’ll go for $100. And he almost got $100 billion. He must be the world’s best salesman.

LIONEL BARBER: He’s an amazing salesman. And I think one of the reasons is that he’s very good at the… The kind of why not question.

LIONEL BARBER: It’s a seduction, but also there’s the absolute kind of confidence that he projects and he’s got in his back pocket. I’m the guy who invested in Alibaba. I mean, he always has that in his pitch deck. But the other very important point is the coincidence of interest.

LIONEL BARBER: Where you have a new ruler, a de facto ruler in Saudi Arabia, Mohammed Bin Salman, and he wants to get access to technology companies. And he wants to be the great modernizer. And he’s got money because he’s got the he’s created he has the sovereign wealth fund, the PIF. He’s also got Saudi Aramco that he’s going to sell some shares in that, the IPO.

LIONEL BARBER: So and he wants to modernize his country at pace. And so SoftBank which was promising, by the way, to be involved in many different aspects, not just bringing technology companies to Saudi Arabia, but also helping on the design of Neom, the new city, all this stuff.

LIONEL BARBER: There was a coincidence of Massa needing the money and Mohammed Bin Salman wanting to be the modernizer.

STEPHEN CLAPHAM: I wonder what he said in that 45-minute meeting to emerge with $45 billion.

LIONEL BARBER: He made a lot of promises about what… He could bring. By the way, the Saudis were really irritated by Massa’s later interview with David Rubenstein and the Ex-Karla boss when he said, you know, I got 45 billion out of them in 45 minutes because it made it sound like Saudi dumb money.

STEPHEN CLAPHAM: Well, I was going to ask you about that because that’s an incredibly rude thing to do because it just makes the guy look like an idiot. He’s given you 45 billion dollars and you didn’t even try.

STEPHEN CLAPHAM: And why would you do that to your biggest investor? I mean, that seemed, I mean, it made him look smart, but it was a very short-sighted comment. And Rubenstein didn’t coax it out of him. I mean, he was desperate to show how clever he was. That just seems extraordinary to me.

LIONEL BARBER: Yeah, he’s not good on the emotional intelligence, and he can often be glib. And maybe also sometimes his English, although he learnt it in… Berkeley, California, when he was in there as a student in the 70s, it can occasionally go into cliche.

LIONEL BARBER: I mean, he talked about his inspirational grandmother who was constantly worrying about money. And he just suddenly says, oh, my Jewish grandmother. And you’re thinking, God, that’s really off pitch. But you’re right about the the it was an insult in effect to the Saudi backers. And they really didn’t forget it.

STEPHEN CLAPHAM: And was it a case, do you think, that once MBS had agreed, the minions who were sort of scratching their heads and said, this doesn’t look that clever a structure to me, they couldn’t sort of reverse the process because it was all, it was promised and it was going to be delivered?

LIONEL BARBER: Yeah, but he’d mentioned the 45 billion or a big number before and there’d been a number of meetings in Japan between the SoftBank people and…

LIONEL BARBER: The the crown prince’s entourage so it wasn’t really a fifth 45 billion in 45 minutes there’s a lot of groundwork done where you are absolutely correct is that there are a lot of questions about how the Vision Fund would actually operate you know SoftBank already had an investment in Uber. It had ARM Holdings, the British company.

LIONEL BARBER: How would what say, if any, would the Saudis have over future investments? And what about their investment in Uber? How would that be untangled? How would the governance work? I mean beyond the coupon of 7%, there were a lot of questions to be answered. And by the way, that led to serious tensions. And it’s why, crucially. The Saudis did not invest in the Second Vision Fund.

STEPHEN CLAPHAM: It wasn’t because they hadn’t made any money.

LIONEL BARBER: No, they just said enough, you know. And also the craziness around WeWork, where, you know, where Massa went for world domination with Adam Neumann. I mean, I talk about that. I have a chapter on WeWork, which is, you think what we’ve heard so far is crazy? I mean, that’s pretty crazy.

STEPHEN CLAPHAM: But I still, I mean, I’ve read it, and I’ve read a lot about WeWork, and… I still can’t imagine what was going through his brain.

LIONEL BARBER: Well, somebody said to me, actually it was Rajiv Misra, who I did interview. I mean, he wanted it off the record, and I did largely make everything off the record. But he was a useful source. And, you know, a very intelligent man, actually. He made the point that actually WeWork could have made it maybe without COVID. I mean, they had a very interesting business model. He says, you’re laughing.

STEPHEN CLAPHAM: Yeah.

LIONEL BARBER: Well, I wrote it down anyway.

STEPHEN CLAPHAM: I think it is a joke. I mean, well, I mean, I’m not saying it couldn’t have survived. I’m not saying that.

LIONEL BARBER: Yeah, but it’s not going to have world domination.

STEPHEN CLAPHAM: But it’s not worth – it would never in a million years have been worth 50 billion dollars.

LIONEL BARBER: Forty seven, 50 billion dollars.

STEPHEN CLAPHAM: No, just physically impossible. I mean, he would have had to have so much real estate that the numbers just couldn’t possibly compute.

LIONEL BARBER: I’m not going to disagree.

STEPHEN CLAPHAM: This is what just astonishes me. And it shows he’s kind of a poor judge of character. And when you’re a billionaire, usually you’re quite a good judge of character, but you haven’t got to that point unless you’ve found the right people to help you. And that’s what puzzles me.

LIONEL BARBER: Yeah, he’s not been good at picking up. People particular. I mean, Marcelo Claure, who did turnaround Sprint, I think was an effective operator, got very handsomely rewarded. But you are right. And I asked someone about this. What’s the difference between Masayoshi Son and Jack Ma, the founder of Alibaba.

LIONEL BARBER: And this is a longtime collaborator and top executive at Alibaba, Chinese. And he said the difference is that Jack is really interested in people. And he believes in teamwork and team building. Masa has no interest. He’s totally mercenary. He only really cares emotionally about his family.

LIONEL BARBER: That’s what I’ve heard and I’ve noticed. He’s not so good on, maybe on the really close entourage, he has certain personal relationships. And he can be generous. But in terms of picking people, I would agree with you.

STEPHEN CLAPHAM: Because Lex Greensill, I mean, what was that about? I mean, that was just bizarre.

LIONEL BARBER: Well, first of all, again, I think the technical term is bullshitter. Yeah. He had a new idea. He said it was just like factoring, but, you know, essentially paying bills for people, settling early and then getting a cut later or before., Again, I’ve got to choose my words carefully here, but there is a connection between the way in which Greensill had access to capital. That’s what interests Masa. I mean, I’ve described in Indonesia where they’re standing, talking about financing the new city, Nusrantara, in Indonesia. And they say this could take tens of billions, maybe 100 billion. And Masa looks at Lex Greensill, he’s got the 100 billion, can you do it? And Greensill says yes. He doesn’t know how to say no.

STEPHEN CLAPHAM: But as you say, the money being given, soft bank investing in Greensill, Greensill having certain funds linked to Credit Suisse, then some of those funds also Masa is involved in. I mean, there’s sort of circular financing going on here, and it’s highly questionable. Because I wrote about this with Mark Rubenstein about 18 months before Greensill. Imploded.

LIONEL BARBER: There’s another deal which I do go into detail on, which is the wire card investment.

STEPHEN CLAPHAM: Of course, a subject close to both our hearts because Dan McCrum has sat in that very seat.

LIONEL BARBER: Well, I’m honored to be in the same seat as Dan. He’s a fantastic business reporter, financial reporter. And, you know, I worked with him very closely to get that investigation over the line. And, you know, we exposed. Dan exposed with Paul Murphy, a scandal, a fraud on the size of Enron in this German payments company called Wirecard. Now, what happened? Wirecard, we published the stories, Wirecard’s share price went down.

LIONEL BARBER: One of Masa’s entourage called Akshay Nahita, former Deutsche Bank. A banker who went on to run All-Star, he said, well, we should invest in Wirecard. We can put a bond up. We’ll get Credit Suisse. Oops, they’re back again. They can back it, and we’ll then offload the risk, and we can make a load of money.

LIONEL BARBER: They made 60 million. Now, interestingly, Masa said, I’m not getting involved in that. He didn’t get involved with it personally, nor did SoftBank on the Wirecard deal. But a number of executives did, and they made out handsomely. But, I mean, this was a fraud. It was very, at least, very opportunistic.

STEPHEN CLAPHAM: Yeah, I mean, I’m not, just for the benefit of any lawyers listening and for the avoidance of that, I’m not suggesting for a minute that Lex Greensill or Masa Son had done anything wrong in the…

LIONEL BARBER: No, nor have I….

STEPHEN CLAPHAM: .. in their investments, just to make that clear.

STEPHEN CLAPHAM: But it did seem quite an unusual sort of setup. And a lot of these things, because he seems to use leverage at every possible level, which I’ve always thought was… You know, the mark of a gambler. He’s leveraged in his private life as well, isn’t he?

LIONEL BARBER: He is indeed. We don’t know what level of debts. I’ve heard all sorts of numbers, you know, running into billions. His personal debts owned to banks. Including international banks as well as Japanese banks, and Mizuho being the most important, by the way, lender to SoftBank.

LIONEL BARBER: But he’s always done that. He’s always leveraged himself. And somebody said, I think it was one of his close partners said that he really became addicted to leverage after the Vodafone Japan deal. Yeah. Because that was the biggest leverage buyout in Asia at the time.

LIONEL BARBER: And, of course, it did turn out to be a great. Great success. I mean, they securitized, it was a whole company securitization. You know, I go into some detail in that explaining how that worked. It was financial engineering in the Harvard Business School range.

STEPHEN CLAPHAM: Yeah, just wondering, you know, you’ve got a billionaire like that, and I’m not aware. I mean, has he sold a lot of his SoftBank shares? Because he’s invested hundreds of millions of dollars in properties around the world. Has he sold stock in order to finance that? Or has he borrowed money? Because how else would he finance a $118 million acquisition of a home in California before he’s remodeled it?

LIONEL BARBER: I don’t know the precise details, but I do know he has sold down his stock from time to time, certainly during the global financial crisis, which I describe.

LIONEL BARBER: And he did say to me it almost been wiped out at that time and he’s also certainly borrowed money from the banks on the back of his stock i think he had around 40 he’s probably got around now 28 30 i think is the latest figure and you know based on SoftBank’s stock as collateral he you know he’s he’s borrowed a lot of money and he’s not used company money i think that’s really important to no no size i not just for his properties around the world, but also his private jet, he says, and his wine, because he loves Romani La Tache.

STEPHEN CLAPHAM: Yeah, that came up a little bit.

LIONEL BARBER: Yes, he uses that. I mean, I saw it.

STEPHEN CLAPHAM: So did you have a glass when you…

LIONEL BARBER: No, he never offered me a glass. I went round his private, his amazing private dining room next to his office. I mean, it’s gigantic.

STEPHEN CLAPHAM: How many people would sit round the table?

LIONEL BARBER: Well, you’d have at least 12 around the table, but then there’s another, sofas on elevated platforms, and it’s a huge room near the top of the skyscraper in Tokyo. And there’s three large rock pools in the room. So imagine that. Yes.

STEPHEN CLAPHAM: So listen, the book is really amazing.

LIONEL BARBER: Thank you.

STEPHEN CLAPHAM: Well, you know, obviously, you’re a brilliant journalist, a brilliant writer, and you spent years doing this. What’s the conclusion? I mean, his legacy, he said he wants to be remembered for his role in AGI, but he’s not invested in AGI. So what’s next for Masa Son?

LIONEL BARBER: I think he will be remembered as the man who broke out of Japan and became a global figure who had some spectacular… bets which went right and we talked about Alibaba and created you know help modernize the Japanese economy around broadband and then mobile etc so that stands the question is can he get in a sort of level two on the AI revolution.

LIONEL BARBER: And he missed chat GPT. He didn’t get close with Sam Altman. I mean, he didn’t get into deep AI when he should have done in around 2020, 2021, which is pretty incredible, given he, you know, he mentioned AI, I think 500 times between in presentations between 2017 and 2022.

LIONEL BARBER: So he’s late to this party, relatively speaking, but he still has money. He’s got at least 40 billion to spend. And he is making investments in AI-related companies. So I think he’s also got ARM, which is this advanced semiconductor manufacturer, a designer. He was reported to be looking to work with Intel, that beleaguered, fantastic, once fantastic American semiconductor chip manufacturer.

LIONEL BARBER: And given the importance of advanced chips, Given Masa’s ability to be a middleman, I think he could be part of that. But the idea, Stephen, that he’s going to be in the meta Google class or even the Warren Buffett class, I think that dream has probably passed.

STEPHEN CLAPHAM: Well, he’s not done badly. I mean, you’ve got to hand it to him.

LIONEL BARBER: And no, I’ve shelled us. I mean, if they’d stuck with him through the stomach churning ups and downs, I think they would have made a round double figures. 10%, 11% since 2015. I mean, it all depends on where the market is at the time and when you choose.

STEPHEN CLAPHAM: Yes, I mean, I’m not convinced about the result for shareholders because, I mean, what he’s effectively done is he’s borrowed in depreciating yen at zero interest or next to zero interest to invest in… tech and other businesses in the United States, and your return from doing that.

STEPHEN CLAPHAM: So if you or I had decided that would be a good idea to do, and we’re happy to wear that risk, then if we just invested in the S&P 500 or in the tech ETF, we’d have made, I don’t know what the numbers are, but I bet you we would have made more money than SoftBank has.

STEPHEN CLAPHAM: And he still hasn’t addressed the fundamental issue, which is… The stock has consistently traded a massive discount to some of its parts and you would imagine that that would have been the focus of attention, because that’s the easiest way of him delivering value to the shareholders is to close that discount.

STEPHEN CLAPHAM: And he’s always gone off on his grand visions, which have caused people to worry. And that’s why he’s got why he’s got the discount. But listen, the book is brilliant. And I really appreciate your taking the time. What’s next for you?

LIONEL BARBER: Oh, I’m going to take a deep breath. And if there’s anybody out there who thinks they could turn this into a movie. The Rise and Fall and Rise of Masayoshi Son, I’m interested in listening to you. I’m certainly going to take a pause on book writing, but I have a media confidential podcast.

LIONEL BARBER: I do some mentoring. I think it’s time to put a bit back of that journalistic experience, and I have some advisory work that I do in the States that keeps me global. I’m on also a think tank board in Japan, so advisory council. So I’m still kind of global. And Stephen, there is life after the FT.

STEPHEN CLAPHAM: And who’s going to play Masa Son in the movie?

LIONEL BARBER: Oh, well, I’m looking. Can you improve your Japanese?

STEPHEN CLAPHAM: My Japanese is restricted to konnichiwa, Arigato gozaimasu. And that is how we will close. Lionel Barber, Arigato gozaimasu.

LIONEL BARBER: Arigato.

STEPHEN CLAPHAM: Lionel Barber was really candid in our discussion. And yet I came away thinking Masa Son remains something of an enigma. He’s made some crazy, indeed stupid investments. WeWork, Greensill, WAG, the dog walking app, and many more. Yet his company SoftBank, created from nothing, is around the 200th largest company in the world.

STEPHEN CLAPHAM: His investment in Jack Ma’s Alibaba may have been skill, or pure luck, but it was still the greatest venture investment of all time.

STEPHEN CLAPHAM: And Lionel Barber is a brilliant journalist and he’s written a fantastic book which i really enjoyed. I hope this conversation entertained you. Let me know if you’d like more of such interviews. I know lots of you like me to interview professional investors but I think it’s fun to mix up now and again let me know at info behind the balance sheet.com and thanks as always for your support.