Diplomatic rapprochement between the UAE and Turkey was sealed this week with a series of agreements between the two countries’ sovereign wealth funds and portfolio companies.
Overcoming geopolitical disagreements, the new era in relations between the two governments was marked by a deal between the US$39 billion Turkiye Varlik Fonu (TVF) and its US$110 billion Abu Dhabi counterpart ADQ on the sidelines of a conference between Turkish President Recep Tayyip Erdoğan and Abu Dhabi Crown Prince Mohammed bin Zayed (MBZ).
ADQ announced that the UAE has created a US$10 billion fund to support strategic investments in Turkey, including in the energy and health sectors. ADQ also signed a partnership pacts with the Turkey Investment Office to explore opportunities in energy and utilities, healthcare and pharma, agriculture, transportation and logistics. With CCN Holding, it also plans joint investments in hospitals and clinics.
One of ADQ’s wholly-owned portfolio companies AD Ports has this week signed a strategic partnership with TVF to collaborate on investment opportunities at port developments and operations, including logistics. Abu Dhabi Securities Exchange (ADX) and Borsa Istanbul, also portfolio companies of ADQ and TVF respectively, agreed to further develop the financial services sector in the UAE and Turkey.
Ahead of the bilateral conference, Abu Dhabi’s SWFs were already supporting e-commerce investments in Turkey. In June, ADQ joined Mubadala in a US$550 million Series D funding round for online grocer Getir. In August, ADQ co-led a US$1.5 billion venture capital round for e-commerce platform Trendyol.
The UAE-Turkey agreement has positioned TVF as a conduit for bilateral investment deals. Established in 2016, it took control of SOEs and other state assets, but endured a bumpy start due to the currency crisis.
The promotion of ADQ as a bilateral partner is a departure from Abu Dhabi’s use of Mubadala to pursue Sovereign Investment Partnerships (SIPs). While ADQ has its basis in domestic infrastructure, it is also aggressively pursuing private equity venture capital as the emirate’s newest fund’s star continues to rise. It is increasingly difficult to distinguish between Mubadala and ADQ, raising the question of a future merger as their strategies and mandates converge and blur boundaries.
However, ADQ has shown a distinct penchant for emerging market acquisitions, focusing on Egypt and India as well as Turkey with an emphasis on venture capital. To fund its future growth in these areas, the infrastructure-heavy fund is looking to generate liquidity through divesting from its chunky domestic assets with plans to list AD Ports on the ADX.
There are, nevertheless, huge hurdles in the way of greater Abu Dhabi engagement with the Turkish economy. Substantive reform in labour market, education and pensions is crucial to enhance innovation. Yet, the Erdoğan administration is drifting in the other direction as it becomes increasingly interventionist, thereby undermining national competitiveness. National leadership continues to favor stimulatory policies that are populist in intent, but feed economic volatility and divert attention from productive parts of the economy. As such, Turkey is a far more challenging market than the SIPs Mubadala signed by the UAE with the UK, China, France, Russia, Greece and Kazakhstan. Yet, ADQ’s interest in Turkey may well be led by the desire to increase risk in its portfolio with the ultimate aim of boosting long-term yield – the goal of all SWFs.