Mubadala has pledged US$2 billion to a new US$2.5 billion joint venture with Alpha Dhabi to co-invest in credit opportunities over the next five years, in a strategic partnership with Apollo.
Private credit has flourished since the 2008 global financial crisis as banks became more risk averse in their lending and interest rates plunged, spurring non-bank institutions to meet unfulfilled demand from corporate borrowers.
Mubadala will own 80% of the venture, which will be based in the Abu Dhabi Global Market financial freezone. The remaining 20% will be held by Alpha Dhabi, which is 45% owned by ADX-listed International Holding Company (IHC). IHC is, in turn, 61% owned by Royal Group, which is led by Sheikh Tahnoun bin Zayed Al Nahyan who also serves as Chairman of another Abu Dhabi sovereign investor, ADQ, and is brother of UAE President Sheikh Mohamed bin Zayed Al Nahyan.
Hani Barhoush, CEO of Disruptive Investments at Mubadala, stated, “We are excited to form this partnership with Alpha Dhabi at a time when global private credit markets are entering a period of significant growth. By leveraging our strong existing relationship with Apollo and combining Mubadala and Alpha Dhabi’s investment expertise and capital, we have created a powerful platform to access investment opportunities worldwide while driving synergies across Abu Dhabi’s ecosystem.”
Mubadala has a long history of establishing strong, value-creating partnerships with leading global organizations. In October 2022, the SWF entered into a partnership with investment firm KKR to co-invest at least US$1 billion in private credit opportunities in Asia. 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.
Mubadala is not the only weighty Gulf investor in private credit. Abu Dhabi Investment Authority (ADIA) announced last year that it would increase its exposure to private credit to boost its returns. In its 2021 report, released in October 2022, it announced its fixed income division will “seek to deploy further capital into less liquid areas of fixed income including private credit, in order to enhance returns in the low yield environment”.
In 2020, its private credit allocation was estimated by Global SWF at US$7.3 billion or 1% of AUM. The target allocation range was raised to 2-7% from 2022. With AUM estimated at US$993 billion at end-2022, an increase to 2% allocation on the lower end of the target would create a private credit portfolio worth nearly US$20 billion, suggesting a potential aggressive move into the market. In August 2022, ADIA committed to invest A$700 million (US$452 million) in commercial real estate private credit through Australian alternative real estate investment manager Qualitas.
Private credit funds had assets under management of US$1.6 trillion by 2022, up 53% from 2017 according to Intertrust Group. Sovereign investors 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.
