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Mubadala Investment Company, Abu Dhabi's sovereign wealth fund that manages more than $284 billion in assets globally, and private equity firm KKR have forged an alliance in which both companies will co-invest across performing private credit opportunities in the Asia-Pacific region to address a shortage of capital and support the long-term growth plans of businesses.
As part of the “strategic partnership”, Mubadala and KKR will invest at least $1bn of long-term capital, providing credit solutions to companies and sponsors, both entities said on Monday.
Mubadala will also use its capital alongside KKR’s existing pools of funds, including the recently raised $1.1bn KKR Asia Credit Opportunities Fund, which focuses on performing, privately originated credit investments in the region.
The partnership strengthens Mubadala’s exposure in the rapidly growing Asia-Pacific credit market and enables KKR to significantly build up its credit platform in the region, capitalising on its growth potential.
“The region’s growth has fuelled an enormous demand for funding solutions, as many companies, sponsors, and entrepreneurs face challenges accessing flexible financing due to limited supply of capital from banks and non-bank lenders,” the entities said.
The Asia-Pacific region’s share of global assets under management (AUM) rose to 30 per cent at the end of 2021, according to the consultancy Bain & Co. Over the past decade, AUM focused on this region grew 2.4 times faster than for North America and three times faster than for Europe, which the Asia-Pacific passed for second place in 2018.
Against the backdrop of a slowing global economy, credit provided by Mubadala and KKR could help bridge financing gaps and spur growth.
The global economy continues to be affected by the war in Ukraine, broadening inflation pressures and a slowdown in China, but the Asia region remains a relative “bright spot” however it is expected to expand at a rate below the average 5.5 per cent recorded over the preceding two decades, according to the International Monetary Fund, which cut its world growth forecast for 2023 this month.
After the strong rebound of 6.5 per cent posted in 2021, growth in Asia and the Pacific is expected to moderate to 4 per cent in 2022, due to the uncertain global environment, before rising to 4.3 per cent in 2023, according to the IMF.
Inflation in the region has risen above most central bank targets but is expected to peak in late 2022, according to the fund.
Despite the global pandemic and supply chain disruptions, Asia-Pacific private equity investors closed a record number of deals, with the value of agreements soaring 50 per cent to a record $296bn in 2021, from the previous year, according to Bain & Co. The value of deals increased 82 per cent over the previous five-year average.
“Expanding into the Asia-Pacific region is a core pillar of our strategy as this market presents unique credit investment opportunities, driven by its rapid growth and high demand for non-bank capital,” said Omar Eraiqaat, co-head of credit investments at Mubadala.
“We are very pleased to collaborate with KKR … and we look forward to leveraging their deep experience and capabilities in Asia-Pacific.”
KKR provided $3bn in credit capital in the Asia-Pacific region since 2019, according to the entities. This includes acquisition financing and tailored capital solutions for companies and financial sponsors in the environmental services, property, education, infrastructure, and healthcare sectors.
KKR Credit has made investments across the Asia-Pacific region, in countries such as Australia, India, Korea, Malaysia, New Zealand, Singapore and Vietnam, as well as the Greater China area and the Korean peninsula. The Asia-Pacific credit business is part of KKR’s global credit platform valued at about $178bn.
“We are excited to strengthen our deep and long-standing relationship with Mubadala through this strategic partnership,” said Brian Dillard, partner and head of Asia-Pacific Credit at KKR.
“Alongside Mubadala, KKR will have the additional resources to materially increase the size of our investments, pursue more opportunities across Asia and extend innovative capital solutions to meet the rising demand of borrowers.
“We look forward to playing an even larger role in helping to meet Asian businesses’ growing financing needs.”