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Sovereign Wealth Funds

Mubadala dealmaking surges to dwarf Middle East peers — for now

While Saudi Arabia's sovereign wealth fund might be attracting all the hype, business is brisk a little to the east in Abu Dhabi.

Mubadala Investment Co., which doubled in size after a tie-up with another local fund, is using its new scale to compete for global deals and sell assets. Since the start of 2017, it's completed 31 deals, according to the Sovereign Wealth Fund Institute, with more in the works. Saudi Arabia's Public Investment Fund completed 16 deals and boycott-hit Qatar Investment Authority did 19.

"Mubadala has always been an active investor, but in the past two years the focus has been shifting away from operational assets to investing," said Rachel Pether, a senior adviser at the SWFI. "Although Mubadala has a long-term horizon, it's only natural that they monetize assets when the capital can be better deployed elsewhere."

Created in 2002, Mubadala is part of Abu Dhabi's effort to diversify its economy by turning oil revenue into profitable investments, while attracting technology and jobs to the emirate. After combining with Abu Dhabi Investment Council in March, Mubadala plans to scout for investments more widely, CEO Khaldoon Al Mubarak said in May.

The fund is said to be opening an office in Moscow next month after buying Verno Capital's private equity advisory business. The company has done about 40 deals with Russia's sovereign wealth fund.

Mubadala may sell shares in as many as three companies this year, including the largest aluminum producer in the Middle East, according to Mr. Al Mubarak. It's exploring options for Spain's Cepsa Trading that could be valued at around €10 billion ($11.6 billion) in a sale or initial public offering. The fund is said to be seeking about €3 billion from the sale, which could make it the largest in Europe this year, according to data compiled by Bloomberg.

A diplomatic spat is hampering the Qatar Investment Authority's ability to continue making headline-grabbing global deals. The year-long boycott by neighboring states including the United Arab Emirates and Saudi Arabia has forced the country's sovereign fund to focus on its economy and inject billions of dollars into local banks to shore up liquidity. The fund is still making some acquisitions, including a $9 billion deal for a stake in Rosneft PJSC, but asset sales are more common.

In Saudi Arabia, the delay in the IPO of Saudi Aramco could hinder the PIF's target to grow its assets to $2 trillion by 2030 from about $230 billion. The kingdom is looking for Plan B to propel its sovereign fund into the ranks of global giants after the share sale looks increasingly unlikely.

While the PIF is still doing deals — it built roughly a $2 billion stake in Tesla Inc., the Financial Times reported Tuesday — international banks that flooded into the market on the hope of reaping fees may have been a little optimistic in their expectations, said Rachel Ziemba, a strategist at Alpha Z Advisors.

"Flows and implementation have been a bit more modest," she said. There's been "a cooling, or rather, shift to more realistic caution in the interest level of global banks in Saudi Arabia, as they adjust their expectations to a slower approach of issuance on the equity side."