Adia commits additional $451m to Australia's Qualitas as part of private credit push

Initial tranche of options issued to Abu Dhabi Investment Authority in August 2022 are now exercisable at a strike price of A$2.50 per share

Adia has agreed to double its investment in Qualitas, an Australian real estate private credit company. Reuters

Abu Dhabi Investment Authority (Adia), one of the world's largest sovereign investors, has agreed to double its investment in Qualitas, an Australian real estate private credit company.

Adia will invest an additional A$700 million ($451 million) from a wholly owned subsidiary in Qualitas Diversified Credit Investments (QDCI), the Australian-listed company said on Tuesday. Adia's initial A$700 million investment in August 2022 led to the establishment of QDCI.

The additional commitment boosts QDCI’s committed capital to A$1.45 billion and Qualitas’ total funds under management to A$7.5 billion, of which 78 per cent is in private credit and 81 per cent is invested on behalf of institutional investors.

Qualitas' co-investment in QDCI has increased to A$50 million from A$35 million.

“A repeat commitment at this scale from a long-term strategic investor such as Adia is a strong endorsement of Qualitas’ funds management platform, growth potential, as well as our track record and experience through multiple cycles in the highly specialised commercial real estate sector,” said Andrew Schwartz, co-founder and group managing director of Qualitas.

Qualitas has A$2.3 billion to invest in Australia's commercial property market “as traditional financiers appear to continue to retreat, particularly in the residential and development sectors”, Mr Schwartz said.

The private credit industry, or nonbank lending, expanded rapidly following the 2008 global financial crisis and now exceeds bank lending in advanced economies, with midsized companies being the largest type of private credit borrowers.

The industry is estimated to be worth more than $1.3 trillion, accounted for about 17 per cent of total credit in 2022 and increased by 14 per cent each year since 2000, about twice the rate of public credit, according to Bank of America Merrill Lynch.

Other UAE entities are also expanding their private credit operations, amid a tightening monetary environment globally.

In January, Alpha Dhabi Holding, a unit of Abu Dhabi's International Holding Company, and the emirate's sovereign wealth fund Mubadala Investment Company formed a joint venture to co-invest up to $2.5 billion over the next five years, leveraging Mubadala’s long-term and strategic partnership with Apollo Global Management.

Last year, Mubadala, which manages more than $276 billion in assets globally, and private equity firm KKR forged an alliance to co-invest at least $1 billion of long-term capital 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.

Chimera Capital, an Abu Dhabi asset management company and subsidiary of Chimera Investments, and investment company Alpha Wave Global launched an open-ended credit fund last year with initial commitments of $2 billion to target private credit market opportunities globally.

Under the terms of Adia's investment in August 2022, the sovereign wealth fund was allocated share options equivalent to about 10 per cent of Qualitas' issued equity. With its new investment on Tuesday, Adia can exercise its options and acquire an equity stake in Qualitas.

Adia can exercise about two thirds of its options at a strike price of A$2.50 per share, according to Tuesday's statement.

Its unclear if the sovereign wealth fund will exercise its options. Adia declined to comment when reached by The National on Tuesday.

“We have demonstrated rapid and consistent growth since our IPO [initial public offering] in December 2021 … despite this being one of the most dynamic macroeconomic environments we have experienced in our 15-year history,” Mr Schwartz said.

“We have continued to execute on our growth initiatives, attracting larger mandates from investors and deploying into larger investments with a continued focus on sponsor quality.”

Mr Schwartz said Qualitas’ private credit funds are delivering returns exceeding inflation on a compounding basis with downside protection.