US private equity company Andalusian to open first global office in UAE by early 2025

It is among a raft of companies looking to capitalise on regional liquidity and investment in emerging asset classes such as private credit

Aaron Kless, managing partner and chief investment officer of Andalusian Credit Partners, left, and Roger Ferguson, the company's executive chairman, at the Abu Dhabi Global Market. Photo: Andalusian Show more

US private equity company Andalusian Private Capital plans to open the first global office of its private credit platform in the UAE next year, aiming to tap into the region's nascent private loan market.

The New York-based Andalusian Credit Partners – whose parent company is backed by hedge fund manager David Tepper who has a net worth of $21.3 billion – has already held several meetings with investors in Abu Dhabi to explore long-term partnership and capital agreements.

The mid-market lender manages $500 million in assets and is “looking to establish a permanent presence” in the UAE and use its base in the Arab world's second-largest economy to tap the rest of the markets in the six-member economic bloc of GCC and the broader Middle East, Aaron Kless, managing partner and chief investment officer of Andalusian Credit Partners, told The National.

The company interest in partners runs across the gamut from institutions such as sovereign wealth funds in the region to large single family offices.

“The commonality across investors in this region is that the focus is partnership rather than transactional, and that is really what's exciting,” Mr Kless, said at the Abu Dhabi Global Market, where he was meeting with potential partners.

The company is pursuing long term contracts from three to 10 years, added Mr Kless, but did not disclose if any deals were made or investment amounts.

He said Andalusian is still deciding whether its UAE office will be established in the capital's onshore financial hub ADGM or the Dubai International Finance Centre.

“We have had active conversations with the regulators in the UAE, particularly ADGM, and will align our operation with our fund-raising objectives and deal flow.”

Prime shift

Andalusian was founded two years ago and manages more than $2 billion in commitments, while its credit platform was established last year and currently lends only to the US middle market.

Andalusian Credit Partners was set up to take advantage of rapid growth in the private credit market as traditional lenders such as banks pulled back with tighter lending restrictions.

Private credit offers direct lending, broader syndicated and mezzanine loans. The size of the private credit market is expected to grow many folds from $875 billion in 2020 to $2.3 trillion by 2027, according to Morgan Stanley data.

Private credit – which offers more tailored and accessible solutions to borrowers – has filled the gap and reached a tipping point last year breaking into the mainstream, with new vehicles and proposal requests for new credit managers being floated on weekly basis, according to an EY report in January.

Private credit funds financed about 86 per cent of leveraged buyouts (LBOs), or company acquisitions with borrowed money, last year, according to Pitchbook Leveraged Commentary and Data.

Interest is also rapidly rising, Google searches related to private credit quadrupled over the course of last year.

This interest is not limited to the US and has seen significant traction in emerging market economies including the UAE.

Andalusian is among a raft of companies looking to the set up a presence in the UAE to capitalise on the deep pool of liquidity as institutional investors look to diversify their investment portfolio and invest in emerging asset classes such as private credit.

Golub Capital, a $70-billion direct lender and asset manager, also plans to set up a UAE office to broaden the pool of its regional investors and raise more money for its private credit strategies, its chief executive, Lawrence Golub told The National in Abu Dhabi.

The Abu Dhabi Investment Authority, the Gulf's largest wealth fund with Sheikh Tahnoon as its chairman, is increasingly putting money in private credit, according to a Bloomberg report this month.

Mubadala Investment Company, Abu Dhabi's sovereign investor, said in September it would participate in a $25 billion private credit and direct lending programme with alternative asset manager Apollo and Citigroup as a strategic partner. The programme will focus on North American at the start and has the potential to expand to other global markets.

Mr Kless described the UAE direct lending market as “early in its development” and sees this as the beginning of a share shift from banks and traditional lenders leveraging finance to non-banks and private lenders. This is similar to what has taken place in Europe, and in the US over the past 15 years, he added.

Gauging UAE interest

The US Securities and Exchange Commission (SEC) added what is considered to be highly controversial rules to the private funds industry in August last year that has increased restrictions aimed at creating more transparency, competition and efficiency.

These new requirements might face pressures to change with the incoming presidency of Donald Trump – whose former Comptroller of the Currency of the US department of Treasury Joseph Otting is a managing partner at Andalusian Credit Partners – is deemed more laxed on regulation and in particular cryptocurrencies.

Andalusian's credit arm focuses on “main street, versus Wall Street” that focus on day-to-day transactions such as employment and services. The middle-market lender focuses its investments in sports media, entertainment, and also financial services, which are less exposed to inflation and interest rates and where the company's chairman sees significant investment potential in the UAE and greater Middle East.

Roger Ferguson, chairman at Andalusian Credit Partners and the 17th vice chairman of the US Federal Reserve, said that if a company is looking to expand globally that setting up in the UAE is inevitable.

“They [the UAE] have become one of the major financial hubs in the world, and if one is interested, as I am, in various versions of asset management, at some point, sooner rather than later, you have to come to this region,” he said.

“They bring not just their own capital but global pools of capital,” he said, especially as family offices are playing a bigger role in building capital.

“This is going to be, it feels to me, one of the major financial capitals in the world. [It's in the] early stages … and one wants to be on the ground floor,” he said, as allocating capital is a major trend and with a global mindset.

At the beginning, it will be about gauging the UAE's appetite for US investments, but as companies mature there will be opportunities to mitigate or make investments in the region as well, Mr Ferguson explained about future possibilities.

“Right now it is [about] setting up offices, understanding, what the what the investment climate is, and what it is that the investors here are looking for in terms of US exposure,” he said, and that they will return to the UAE in mid-December to continue talks while at ADGM's global event, Abu Dhabi Finance Week.