The private equity industry has long been dominated by the Wall Street elite: firms like the Blackstone Group, Kohlberg Kravis Roberts and Carlyle.
Now SoftBank, a Japanese conglomerate best known in the United States for its ownership of Sprint, is looking to muscle in on this lucrative business.
Under Masayoshi Son, the founder who still leads it, SoftBank has been a relentless deal maker for decades, shaking up industries and most recently unleashing a $100 billion investment fund focused on technology.
Despite Mr. Son’s reputation — he is sometimes compared to Warren E. Buffett — the Wall Street establishment was skeptical when SoftBank last year made its first big private-equity play, buying Fortress Investment, a midsize asset manager.
Why would a man eyeing the far frontiers of technology buy a firm that invests in mortgage servicing, subprime lending and dubious Italian loans? The $3.3 billion deal for Fortress also represented a rich 38 percent premium to the company’s flagging stock price.
With his technology fund and Fortress under one roof, Mr. Son concluded that SoftBank could create an asset management firm capable of siphoning business from industry heavyweights. With their rich fees and locks on client cash for as much as 10 years, so-called alternative investments — investing in private equity, hedge funds and distressed debt — are the fastest-growing segment of the fund industry.
Though not yet formally established, the plan is for the new firm to be called SoftBank Financial Services. Fortress and the Vision Fund would be the main cogs, but they would exist as separate entities.
Rajeev Misra, a top Wall Street financial engineer who now heads the Vision Fund, will take charge of the larger company, to be based in London.
He is an unusual choice to head a large asset management firm. During a 12-year career at Deutsche Bank, Mr. Misra oversaw the creation and distribution of the complex mortgage securities that were at the heart of the financial crisis in 2008.
Nor does he have substantial experience in private equity or venture capital. But his expertise in devising complex financing solutions appealed to Mr. Son, one of the larger players in global debt markets. Mr. Son was also a client of Mr. Misra’s at Deutsche Bank.
A native of India, Mr. Misra, who is 56, was among a wave of Indians whose intellect — he has degrees in computer science and mechanical engineering — and ambition propelled them to the top of Wall Street (he is a childhood friend of Anshu Jain, the former Deutsche Bank chief). His raspy voice and occasional coughing fits betray a decades-long chain-smoking habit that he has not yet kicked.
“Right now we are close to $140 billion,” he said in a recent interview, counting the combined assets of the Vision Fund and Fortress. “If we perform well, we would hope to be two times that number in the next five years.”
In terms of sheer size, SoftBank is already challenging Kohlberg Kravis Roberts, which oversees $148 billion.
But size isn’t all that matters. Industry experts argue that the SoftBank method — raising gobs of money and building a firm around it — is rare. Outfits like Blackstone, K.K.R. and Carlyle evolved, and became institutionalized, over decades through the persistent energies of their respective founders, Stephen A. Schwarzman, Henry Kravis and David Rubenstein.
“It takes a lot of work to build one of these organizations,” said Josh Lerner, a private equity specialist at the Harvard Business School. “The best of them have been built through a careful process of balancing controls that limit risk with maintaining incentives and the entrepreneurial spirit of the firm. Just the ability to raise money is not a guarantee of success.”
At Blackstone, Mr. Schwarzman, for one, does not seem alarmed by SoftBank.
When an analyst asked on a conference call last month about the threat posed by the new venture, the Blackstone chief noted that the Vision Fund was investing large sums in technology companies that are spending more cash than they are bringing in.
In the private equity world, that counts as trash talk. Cash flow is its lifeblood; without it, companies cannot repay debt and pay dividends to their investors.
For example, the Vision Fund has been making big bets on start-ups like Uber, WeWork (shared workplaces) and Wag (on-demand dog care) that are known for burning through cash, not generating piles of it.
Until recently, SoftBank’s fledgling investment arm was little more than a group of analysts in Tokyo and London sifting through possible deals. Buying Fortress provided the group with a template to use as it moved to becoming an actual institution, with a formal investment committee, compliance department, trading desk and investor relations unit. The new entity is now 1,000 people strong.
Fortress, which manages over $40 billion, is a tier or two below leaders like Blackstone. It is run by Wesley R. Edens and Peter Briger Jr., who helped found the firm.
Mr. Edens, who oversees the firm’s private equity business from New York and is a co-owner of the Milwaukee Bucks basketball team, is the point man for the firm’s more prominent projects. These include All Aboard Florida, a private railroad company; Onemain, the country’s largest subprime lender; and Nationstar, which collects mortgage payments on behalf of lenders.
Mr. Briger looks after the credit and lending business. Known as the garbage collector, he hunts for distressed assets to buy on the cheap.
Compared to its competitors, Fortress has not seen a big increase in its funds since it sold its shares to the public in 2007. Assets under management have gone from about $30 billion to a bit more than $40 billion.
Having worked briefly at Fortress before jumping to SoftBank in 2014, Mr. Misra is confident it can accelerate that.
The Fortress deal closed late last year and Mr. Misra plans to market Fortress-branded private equity and debt funds to contacts he and Mr. Son have in the Middle East, the source of a large chunk of Vision Fund money. Acquisitions of smaller, similarly themed investment firms are also a possibility.
“My vision,” Mr. Misra said, “is to become one of the largest managers of alternative assets in the world.”