Mubadala is furthering its ambition to become a major player in global credit markets with the expected purchase of asset manager Fortress Investment Group from SoftBank Group for US$3 billion, according to the FT.
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. SoftBank had acquired Fortress in 2017 for US$3.3 billion with the hope of using it to raise third party capital, but the financially troubled tech investor is cashing it in as it struggles under the heavy weight of debt. 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.
Hani Barhoush, CEO of Disruptive Investments at Mubadala, stated at the time, “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 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.
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.
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.
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.
