Abu Dhabi’s Mubadala reported a 2.9% drop in assets under management to AED1,015 billion (US$276 billion) in 2022, the largest contraction since 2014, but its -3.1% single-year return outstripped the benchmark and industry average (-8.1%)

Divestments are almost as high as investments – a trend that has continued for several years. In 2022, Mubadala deployed US$29.1 billion in capital (down 14.4% over 2021) and earned US$28.8 billion in proceeds (down 13.8%). A total of US$123 billion was monetized over the 2017-22 period.

The portfolio remains highly liquid, but the fund’s annual report shows there was a slight tilt from equities to credit – possibly due to the impact of falling stock values. The move towards increased credit investment exposure will be accelerated following the announcement this week that the fund had agreed to purchase a stake in the Fortress Investment via Mubadala Capital from SoftBank Group, which will raise its equity from 10% to 70% with management holding the remainder. Fortress will continue to operate as an independent investment manager, rather than its assets being absorbed into Mubadala’s credit portfolio.

The Abu Dhabi fund is rapidly expanding its exposure to private credit markets through partnerships as it seeks to capitalize on rising interest rates and opportunities in distressed debt, suggesting credit will increase from 6% of AUM in 2022. In March, it forged a joint venture with Ares to invest in global credit markets, starting with an initial target of US$1 billion.  In January, Mubadala formed a joint venture with Alpha Dhabi Holding to co-invest in private credit opportunities with plans to invest up to US$2.5 billion over the next five years; Mubadala holds 80% of the JV with the remaining 20% held by Alpha Dhabi. Mubadala also launched an alliance with private equity firm KKR in October to co-invest US$1 billion across performing private credit opportunities in the Asia-Pacific region.

Mubadala also reported a change in geographical exposure with the US and Asia-Pacific rising by 2% each in the portfolio distribution to 40% and 16% respectively, at the expense of Europe (15%) and the UAE (23%).

The signs are that Mubadala, along with its sister funds the Abu Dhabi Investment Authority (ADIA) and ADQ, is planning to ramp up its Asian exposure. This week, key members from all three funds – representing total wealth of US$1.43 trillion – met with South Korean corporate leaders and government officials to examine investment opportunities after UAE President Mohammed bin Zayed AI Nahyan said they would invest US$30 billion in the Asian tiger economy. Battery manufacturers and fintech platforms were among the companies courting Abu Dhabi sovereign wealth, although each fund is likely to take a different approach to investment.

Yet, the 2022 annual report makes some notable omissions. The Abu Dhabi Investment Council (ADIC) – which merged into Mubadala in 2019 – and venture capital arm Mubadala Capital – which also manages third party capital – were not mentioned once in the report. Despite the UAE’s hosting of the 2023 United Nations Climate Change Conference (COP28) in December, there is still no reporting on Mubadala’s carbon footprint and the strategy the fund intends to take to reduce greenhouse gas emissions of its portfolio companies.

Nevertheless, Mubadala is cognizant of the need to put words into action. The annual report states: “Expectations on UAE businesses and agencies will be high, and the UAE Government will be looking for examples of climate commitment, international partnerships around climate change and inclusive and innovative solutions. The need for action must be balanced with the calls for increased scrutiny and little tolerance for net-zero greenwashing.”

The expectation is that Abu Dhabi’s second-largest SWF will make a big announcement on environmental strategy that should go above and beyond the great strides it has made so far via Masdar, the renewables company it set up in 2006.

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