UAE-backed Strategic Investment Partnership to invest £10bn in UK

Abu Dhabi fund Mubadala signed an agreement at Downing Street on Thursday to significantly expand the UAE-UK Sovereign Investment Partnership, building on a framework for investment announced in March 2021.

Over the next five years, the UAE-UK SIP plans to drive a significant increase in investment across a further three sectors: technology, infrastructure and energy transition, as well as build on the existing programme of life sciences investment.

The announcement committed £10 billion ($13.7bn) to build on Mubadala’s £800 million commitment and the British government’s £200m to UK life sciences when the partnership was established in March.

The UAE-UK SIP will become the central investment platform under the new Partnership for the Future bilateral framework, which was also agreed on today at a meeting between UK Prime Minister Boris Johnson and Sheikh Mohamed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces.

The deal was welcomed by officials from both countries as a step-change in the relationship.

"Today's expansion of our Sovereign Investment Partnership will help accelerate funding and innovation in key sectors that are foundational to economic growth of both nations," Khaldoon Al Mubarak, Mubadala managing director and group chief executive, said.

"It is a testament to the UK's innovation economy that we are ahead of target with the UAE-UK SIP life sciences programme, which we announced in March of this year. We are already developing ambitious energy transition, technology and infrastructure investment programmes that create new jobs and strengthen commercial ties between our nations."

The UK said the framework offered the country new ways of meeting its post-Brexit growth ambitions.

“Attracting investment has become globally competitive, and there’s never been a better time to be taking part and investing in the UK," said Lord Grimstone, Minister for Investment.

“This partnership has gone from strength to strength and its expansion is evidence of its effectiveness and what we can achieve with important trade and investment partners like the UAE through investment. The partnership will expand the exchange of knowledge, skills and ideas that will drive prosperity in both nations.

“It’s great to see the Office for Investment together with Mubadala Investment Company deliver what we initially set out to do, and expanding into new verticals that will drive economic growth across the UK.”

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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.”