Abu Dhabi’s biggest sovereign wealth fund has more than doubled its investment in Australian real estate private credit company Qualitas Diversified Credit Investments (QDCI) to A$1.45 billion (US$932 million) as it continues its push into private credit markets.

The Abu Dhabi Investment Authority’s (ADIA) investment has raised QDCI’s total AUM to A$7.5 billion, 78% of which is private credit. Under the terms of ADIA’s initial investment in August 2022, it was allocated share options equivalent to about 10% of Qualitas' issued equity.

The move demonstrates ADIA’s interest in advancing in the private credit market as the banking sector retreats from the sector, leading to reduced competition and higher margins. Sovereign investors like ADIA benefit from lower liability constraints that enable them to take on more liquidity risk than banks. Their greater risk appetite is driven by their long-term investment horizon. The asset class was notably resilient amid the pandemic with managers successfully protecting their portfolio values as well as deploying dry powder to add assets.

Private credit funds had assets under management of US$1.6 trillion by 2022, up 53% from 2017 according to Intertrust Group. The private credit industry has grown at a rate of 14% per year on average since 2000, according to Bank of America Merrill Lynch. With traditional banks restricting lending, private credit will serve as a crucial source of financing in the economic recovery, particularly for mid-market companies.

ADIA has a long-standing interest in buying stakes in managers. In 2007, it acquired a 9% stake in US private equity firm Apollo Management and a 20% stake in Ares Management. In May, ADIA was among a group of investors that bought a 20% stake in CI Financial Corp’s US wealth management unit for US$1 billion.

Another Abu Dhabi SWF, Mubadala, is also furthering its ambition to become a major player in global credit markets with the purchase of asset manager Fortress Investment Group from SoftBank Group for US$3 billion, announced in May. Fortress has nearly US$50 billion in assets under management and its inclusion in the Mubadala portfolio would make the Abu Dhabi sovereign investor one of the world’s biggest credit investors. Mubadala is already a minority shareholder.

Mubadala has a long history of establishing strong, value-creating partnerships with leading global organizations. 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.

In March, it forged a joint venture with Ares to invest in global credit markets, starting with an initial target of US$1 billion. The partnership is developing customized liquidity solutions for credit secondaries, with potential for further growth. Mubadala is anchoring the investment, utilizing Ares’ experience, knowledge and origination capacity. Mubadala is building on a relationship with Ares that began in 2017, but it has worked with other asset managers in the private credit asset class.

The partnership is being developed to take advantage in growth in credit secondaries transactions as a result of growth in the primary private credit market. According to Dave Schwartz, who serves as Partner and Head of the Credit Secondaries strategy, there will be a “meaningful supply-demand imbalance requiring dedicated capital to meet the liquidity needs of General and Limited Partners.”

Fabrizio Bocciardi, Head of Credit Investments at Mubadala, said at the time, “Private credit has become a relevant and important part of institutional portfolios which has led to the growth and development of the private credit secondaries industry.”

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. The deal builds on Mubadala’s long-term and strategic partnership with Apollo Global Management. Mubadala holds 80% ownership of the Abu Dhabi Global Market-based joint venture entity, 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 is deploying its capital alongside KKR’s strategies, including the KKR Asia Credit Opportunities Fund, a US$1.1 billion credit investment vehicle KKR closed in May 2022. Non-bank financing has grown as companies seek alternative sources of funding. It entered into a similar partnership in September 2020 with Barings, with the creation of the Barings Mubadala Enterprise (BME), an origination platform seeking to provide financing solutions to European middle-market businesses with US$3.5 billion disbursed up to Q1 2022.

Related funds ADIA Mubadala
Related tags Private Credit