SoftBank Group Corp. has pulled about $700 million from a Credit Suisse Group AG fund after executives at the Swiss bank grew concerned that the Japanese conglomerate held conflicting roles in the fund that weren’t fully disclosed to other investors, according to people familiar with the matter.
The Credit Suisse probe began last month after bank executives became concerned about potential conflicts of interest in the fund, as well as three sister funds, which make money by providing short-term cash to companies.
In essence, SoftBank was acting as both lender and borrower in a complex circle of transactions. Credit Suisse found that aspects of this arrangement weren’t fully disclosed to its investors, according to the people familiar with the matter.
The four funds that Credit Suisse reviewed manage about $7 billion and are sold to pension funds, corporate treasurers and wealthy families as safe, short-term investments.
Greensill’s business, known as supply-chain finance, involves paying companies’ suppliers faster than normal, but at a discount to the invoiced amount. The corporate clients, known as obligors, agree to pay back Greensill later. Those promises are packed up into securities and sold to the Credit Suisse funds.
The supply-chain finance industry was rocked in recent months as global trade has slowed and corporate defaults and bankruptcies have multiplied. Regulators, ratings firms and accountants are also concerned about the financing method, which critics say can be used to disguise the overall level of debt on companies’ balance sheets.
The withdrawal of SoftBank’s money is a setback for Greensill, though it relies on the funds for just around 20% of its business, according to people familiar with the matter. The Credit Suisse funds typically keep cash on hand in case of redemptions, with the main fund offering investors money back within a week of a request to withdraw funds.
A Greensill spokesperson said it welcomed the steps being taken “in the interests of all investors” and that it has built a strong partnership with Credit Suisse over the past four years. A SoftBank spokesperson didn’t have an immediate comment.
Credit Suisse is one of the world’s largest managers of rich people’s money and offers clients different investment products that can generate returns in unexpected ways, often using complex financial engineering.
It sent a letter to investors in the Greensill-linked supply-chain funds Monday outlining the conclusions of its review. The letter, which was reviewed by The Wall Street Journal, said the bank is “committed to taking steps to further protect” investors in the fund.
These include reducing the maximum exposure of the funds to any single corporate client. People familiar with the review said the bank’s management was concerned that about 15% of the assets in one of the funds were related to four SoftBank Vision Fund companies.
The four are auto-financing company Fair Financial Corp.; Indian hotel chain Oyo Hotels & Homes; glass manufacturer View Inc.; and Chinese online car-trading platform Chehaoduo Group, which operates Guazi. View was tied to more than $80 million in financing from the main fund for a term of one year, a long period for a supply-chain deal. Most of the financing in the fund was extended for around 90 days.
The bank’s management was also concerned about a separate side agreement that Credit Suisse employees had struck with SoftBank and which wasn’t disclosed to existing investors in the fund, the people familiar with the review said. In the side agreement, which came after SoftBank invested the $700 million, Credit Suisse reserved three of the four supply-chain funds exclusively for Greensill-generated assets. This would ensure a steady stream of financing for Greensill.
The Greensill-linked funds are managed by Zurich-based Lukas Haas, who has been at Credit Suisse’s asset-management division since 2012, according to his LinkedIn profile. Credit Suisse declined to make him available for comment.
SoftBank had injected money into the largest of the funds in late April, people familiar with the matter said. At the time, other investors were withdrawing cash as the coronavirus lockdown sent markets into a spiral. SoftBank redeemed the money last week, one of the people said. SoftBank’s withdrawal caused the fund it invested in, the largest of the four, to shrink by around 12% since June 30 to just under $5 billion.
Most of the four funds’ financing is tied to global businesses including Vodafone Group PLC, AstraZeneca PLC and General Mills Inc. But less-established businesses, such as the SoftBank Vision Fund companies, as well as companies with limited financial track records, have also received financing, The Wall Street Journal previously reported.
The Credit Suisse letter to investors said the funds “have performed consistently well despite the challenging market environment.” It also said that no investors have incurred losses as a result of the matters that were reviewed.
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