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Mubadala and Alpha Dhabi to capitalise on discounted assets

Mubadala made the investment in collaboration with funds managed by US-based Harvest Partners
  • Partnership will collectively deploy $2.5bn over next 5 years
  • Expert says move is to invest more in credit opportunities
  • Almost half of 2022 global mega-deals were made by Gulf SWFs

The move by Alpha Dhabi and Mubadala to join forces and co-invest in credit opportunities does not pose a significant threat to traditional banking structures.

Instead, according to Rachel Ziemba, founder of geo-economic advisory firm Ziemba Insights, it will act as a valuable tool to “look for early-stage investments and perhaps pick up assets at a discount, at a time when others in this space are pulling back”.

Alpha Dhabi, the fourth most valuable listed company in Abu Dhabi, and Mubadala plan to collectively deploy up to AED9 billion ($2.5 billion) over the next five years.

The aim is to leverage Mubadala’s long-term partnership with Apollo, one of the world’s largest alternative asset managers, to access high-quality private credit investment opportunities.

With rising interest rates and inflationary pressures, as much of the world prepares to slip into recession, the move could be seen as the UAE seeking to position itself as an alternative source of funding to traditional banks.

However, Ziemba told AGBI that while it was an “interesting development”, it was one that “is well in line with an established trend of regional strategic funds looking to invest more in credit opportunities at home and abroad and in leveraging knowledge from their investments abroad in key sectors of development at home.”

“Ultimately, it may be important within some key sectors especially at early-stage investment, but the volumes being considered aren’t enough to move the needle at a global capital flows perspective,” she added.

Allocations to the private credit asset class have continued to gain traction and increase regionally. They are seen as a route to generate strong returns while providing effective downside protection, particularly in the current macro-economic environment.

Ziemba added that she expects Mubadala and others to continue investing in banks and traditional finance “while also providing new vehicles to increase flows at home to earlier stage and later stage businesses”.

Mubadala will hold 80 percent ownership in the Abu Dhabi Global Market-based joint venture entity, with the remaining 20 percent to be held by Alpha Dhabi.

Hani Barhoush, CEO of disruptive investments at Mubadala, said: “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.”

Sovereign wealth funds (SWFs) across the Middle East are forecast to take advantage of limited competition from global peers this year to pursue “cheap” assets in Europe, the US and other western markets, according to the annual study of the sector by consultancy Global SWF.

Middle Eastern SWFs more than doubled their investments in Western economies, including the US and Europe, from $21.8 billion in 2021 to $51.6 billion in 2022.

Of the 60 mega-deals in 2022 (those of $1 billion or more), 26 were carried out by Middle Eastern SWFs, and 17 of them were linked to American or European assets.