Abu Dhabi sovereign wealth fund Mubadala is accelerating its private credit strategy with a joint venture with Ares to invest in global credit markets.
Starting with a US$1 billion initial target, it will develop customized liquidity solutions for the credit secondaries, with potential for further growth. Mubadala is anchoring the investment, utilizing Ares’ experience, knowledge and origination capacity.
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 will serve 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, “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.”
Investors are drawn to credit funds for potentially higher returns. The private credit industry is estimated to be worth about US$1.3 trillion and accounted for approximately 17% of total credit in 2022. It 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.
The asset class has increased significantly among sovereign investors, which 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.
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.
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.
In September 2020, Mubadala and Barings formed the Barings Mubadala Enterprise (BME), an evergreen origination platform seeking to provide financing solutions to European middle-market businesses. BME and its capital partners aimed to provide US$3.5 billion in financing by Q2 2022 to help meet growing corporate demand for flexible capital solutions in Europe.