Business

Investment company's ever-widening reach

Asa Fitch

March 25, 2011

Mubadala Development, a strategic investment company owned by the Abu Dhabi Government, announced profits of Dh1.1 billion (US$299.5 million) for last year as revenues grew by 22 per cent. The main contributors were energy, aerospace and infrastructure. Mubadala's key assets in those sectors, and some other businesses, are:

Strata

Strata is an aerostructures plant in Al Ain that opened last year and finished its first composite aircraft parts in September. Its first products were flap track fairings, structures that reduce drag on jetliners' wings, for Airbus A330s and A340s. The plant has contracts with Airbus, Alenia Aeronautica and FACC, and other major aircraft makers. A second phase of construction to expand the business is expected to begin next year.

Sanad

Sanad was launched last year to lease and manage spare parts and engines for aircraft. It is part of Mubadala's numerous aircraft maintenance ventures, which include SR Technics, a maintenance and repair outfit based in Zurich airport, and Abu Dhabi Aircraft Technologies, which services military and civilian aircraft. Mubadala also owns the Advanced Military Maintenance Repair and Overhaul Centre, a venture with the US company Sikorsky.

Paris-Sorbonne University

Mubadala is behind the new Abu Dhabi branch of one of France's most famous educational institutions on Al Reem Island, which comprises one of its core investments in infrastructure. The first phase was completed in 2009, and the second phase last August. Other investments in education infrastructure include a new UAE University campus in Al Ain and a branch of Zayed University in Abu Dhabi.

Dolphin Energy

Dolphin Energy operates the Gulf's only interstate gas pipeline and produces gas in Qatar. Along with Pearl Energy, which does exploration and production in South East Asia, Dolphin has been a major contributor to Mubadala's revenues in past years. Last year, energy companies contributed 38 per cent of revenues, down from 81 per cent in 2008.

Imperial College London

One of Mubadala's oldest healthcare assets, the Imperial College of London Diabetes Centre, opened in Abu Dhabi in 2006. Since then Mubadala has diversified its healthcare holdings, which now include the Abu Dhabi Knee & Sports Medicine Centre, the Arzanah Wellness & Diagnostic Centre and the Tawam Molecular Imaging Centre in Al Ain. A new branch of the Cleveland Clinic is due to open on Sowwah Island.

Emirates Aluminium

Emal, a joint venture with Dubai Aluminium, reached full production capacity last year and is a central asset in Mubadala's portfolio of industrial companies.

Stock holdings

Mubadala has substantial holdings in stocks locally and internationally. It is one of the biggest shareholders in General Electric, Advanced Micro Devices and the Carlyle Group. It owns large chunks of the property developer Aldar, and Tabreed, a district cooling company.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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