Abu Dhabi’s Mubadala looks beyond resource roots

Abu Dhabi’s most active investment fund Mubadala is turning away from its roots as it cuts its holdings in energy and other commodity-related assets while ramping up investments in technology, healthcare and disruptive industries.

Khaldoon al-Mubarak, chief executive, said the $232bn fund’s strategy shift would mean more selldowns in “legacy commodity sectors” either through market listings or private placements, including an initial public offering for Emirates Global Aluminium.

Mubadala is also planning an IPO for Yahsat, a satellite company set up 14 years ago, and is considering whether to list GlobalFoundries, the US-based chipmaker into which it has pumped billions of dollars over the past decade, and which turned its first profit in 2019.

At the same time, the fund is increasing its investments in Asia’s two powerhouses as it aims to double its assets under management by 2030.

“The sectors we like all have a significant growth trajectory in China and if you look at the overall portfolio and the percentage of coverage we have in China, it’s nowhere near where it should be,” Mubarak told the Financial Times. “The same applies for India.”

Mubadala deployed more funds and “monetised” more assets last year than the highs it hit in 2019, when it invested $18.5bn and raised $17bn through divestments, Mubarak said, adding that annual results in June would reveal higher income.

The shift in strategy reflects Abu Dhabi’s thinking as its leaders increasingly focus on developing tech-related hubs and industries rather than manufacturing. It also fits with the deepening economic ties between the United Arab Emirates and Asia.

Born out of petrodollar wealth, Mubadala, chaired by de facto UAE leader Sheikh Mohammed bin Zayed al-Nahyan, has embodied Abu Dhabi’s ambitions for the past two decades.

In the 2000s, it was tasked with diversifying the oil-dependent economy and making strategic overseas investments. The fund drove greenfield projects including a desert aircraft parts plant and its huge aluminium business, as well as real estate, energy and tourism.

Mubadala garnered a reputation as the Gulf’s most professional state investment vehicle. When another, the International Petroleum Investment Company, became embroiled in the 1MDB fraud, its assets were folded into Mubadala, further boosting its firepower.

But its industrial projects have had mixed success. The aerospace parts factory, which opened in 2009, only employs about 600 people, while plans to establish a semiconductor plant in Abu Dhabi after Mubadala pumped billions of dollars into GlobalFoundries never made it off the drawing board.

Its overseas exposure, meanwhile, became heavily weighted to the US, which accounted for more than $100bn of the fund’s assets under management, as it partnered with groups such as General Electric and Carlyle. Mubadala on Friday invested $75m in Recursion Pharma through an IPO, raising its stake in the US company to about 11 per cent. 

Today, its partners are more likely to be SoftBank, US private equity company Silver Lake and Google. Mubadala was one of the anchor investors in SoftBank’s Vision Fund, pumping in $15bn, and its biggest deals last year were a $2.4bn commitment to a partnership with Silver Lake and a $1.2bn investment in Indian conglomerate Reliance Industries’ digital upstart Jio Platforms.

Silver Lake said on Wednesday that it would invest $800m in Group 42, an Abu Dhabi-based artificial intelligence and cloud computing company in which Mubadala has a significant stake.

Mubadala this year formally switched its core areas of investment from the likes of petrochemicals, aerospace and manufacturing to direct investments, disruptive industries and real estate and infrastructure.

It announced a multibillion-pound “sovereign investment partnership” with the UK last month, pledging £800m to a life sciences fund and a commitment to make similar investments in British tech, green energy and infrastructure over five years.

“We are not going to take a pause, the momentum is there and it’s the whole point with this shift in the portfolio,” Mubarak said. “I’m not saying we are going to completely exit headwind sectors, but the strategy of redeployment and rebalancing our portfolio strategy . . . has proven to be successful.”

The changes began two years ago, as Mubadala’s development mandate diminished and it focused more on returns while reducing its exposure to sectors once at its core but now facing “headwinds”.

This included multibillion-dollar sales of stakes in companies such as European gas company Cepsa and chemicals group Borealis as the fund has cut its exposure to energy, petrochemicals and mining by about a third to 45 per cent. Mubarak expects a further drop to 20-30 per cent of the portfolio.

He said Mubadala was considering its options with GlobalFoundries, a capital-intensive business that has struggled to compete with market leaders Taiwan Semiconductor Manufacturing Company and Samsung Electronics.

“It’s a very challenging industry, a very competitive industry, [and] we went through lots of ups and downs . . . but the thesis [for the investment] was the right one,” Mubarak said. “Now GF has reached that point where it’s really in the right place and ready to go to the next level. Is that next level an IPO, is it something else? This is what we will decide.”

He said Mubadala’s focus in Abu Dhabi was on the development of industries in the UAE where “we can . . . be competitive globally and where we can have scale”.

“It’s that next industrial play. Life sciences, that’s a sector we know is going to be growing immensely and we have the sort of competitiveness in that space where we can create the right industries here,” Mubarak said. “Technology is [another] area we are very strong in.”