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Gulf sovereign wealth funds vary recipes for success

Khaldoon Khalifa Al Mubarak, group chief executive officer of Mubadala Reuters/Jason Lee
Mubadala, which controls $276bn of assets, will also invest in healthcare, digital infrastructure and financing this year, said CEO Khaldoon Ak Mubarak
  • Report reveals different strategies used by SWFs
  • Abu Dhabi prefers co-investing with private equity funds
  • Saudi and Qatar go it alone

Gulf sovereign wealth funds are pursuing differing investment strategies when it comes to the way they buy into target companies, according to a report by analyst Global SWF Institute.

The paper highlights how the Kuwait Investment Authority (KIA) and Investment Corporation of Dubai prioritise buying into target assets via funds, while Saudi Arabia’s Public Investment Fund (PIF) and Qatar Investment Authority prefer their direct investments to be on a solo basis.

Abu Dhabi trio Mubadala, ADQ and Abu Dhabi Investment Authority (ADIA) tend to undertake co-investments with other institutions.

“Strategic funds like Mubadala have long been much more comfortable taking more sizable stakes in their acquisitions, using leverage to scale up their stakes, than their peers such as KIA or even ADIA,” said Rachel Ziemba, founder of New York-based advisory firm Ziemba Insights.

Over the past five-and-a-half years, ADIA has spent $28 billion in deals orchestrated by private equity funds, according to the Global SWF report.

It notes that in the first half of this year alone ADIA co-invested with the likes of Thoma Bravo, Orix, Apollo, Blackstone, THL and Bain Capital.

ADIA invests both in and with external funds, also making direct investments in tradable securities and infrastructure, Ziemba said.

The investment approach depends on the asset class and benchmark, she added. Investments in infrastructure and real estate tend to be part-funded through borrowings; likewise strategic co-investments with private equity firms.

“The willingness of large funds like ADIA and QIA to use a range of investment strategies reflects in part their size and the different goals of different parts of their funds,” Ziemba said.

Gulf sovereign funds also differ in the extent of their use of in-house investment teams versus external advisors who invest on their behalf, she said.

The biggest divergence in terms of wealth funds’ investment approach “is probably between strategic funds like Mubadala, ADQ, PIF and to some extent Qatar Investment Authority and portfolio funds like ADIA”, Ziemba added.

“KIA is probably one of the most conservative in part because of political pressures in Kuwait.”

ADIA co-invested with Singaporean sovereign fund GIC on eight deals in the first half of 2023, New York-based Global SWF noted.

“The advantages of co-investing are clear as they provide a double layer of due diligence, better fee conditions and diversification, “ the report states.

“On the minus side, some sovereign investors may prefer to avoid deal visibility and loss of control of the transaction to other government funds.

“So, while it is not for everybody, we expect to see an increasing volume of co-investments in the years to come as private equity and credit gain momentum among state-owned investors.”

State-owned investors include public pension funds as well as SWFs.

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