Since its inception almost 10 years ago Mubadala has grown to manage over AED100 billion ($27 billion) in assets. How did you get to that stage?
We always have a dual mandate. Here within Mubadala we call it the double bottom line. We try to view all of our investments, across the eight sectors we currently focus on, through this lens.
When we started in 2002, the concept and the mandate were clear, because that was set in consultation with our shareholder. The issue was really defining how we got there. So one of the things to note is that today Mubadala has eight different sectors from semiconductors to aerospace to renewables. That wasn’t always the case. That in itself is one important element of evolution.
When we were smaller, we started with oil and gas. That was our original focus. It was always viewed as a bridge to help us invest in further sectors, because energy was something Abu Dhabi knew how to do quite well, and we had a legacy of assets – mainly Dolphin Energy.
The idea was to use that bridge to develop a strategy that would enable us to meet our vision and mission. Over the next 10 years you then saw Mubadala branching out into industry, into infrastructure. As we identified more and more sectors that would be interesting both from an investment perspective and from an economic diversification perspective, you see what you have today, which is the full panoply of areas that we are investing in and developing.
Are you where you want to be today, in terms of the kinds of sectors you have within the company?
This is a dynamic process. Every couple of years we take a step back and look at potentially expanding some of the areas that are of interest to us and to our shareholder.
So, some of the new areas that we are looking at expanding into are, for example, media. We are thinking of expanding our health services into other areas: pharmaceuticals come to mind. These are all things that are in the incubation stage, which might or might not be fully realized. These are areas that we think about, as we try to find those areas that hit our double bottom line.
Why are media and pharmaceuticals a potential focus: how would these add to your double bottom line?
It’s for the same reasons as aerospace and some of the other assets that we have. They all tend to follow the same kind of criteria that we fit our investments round. So pharmaceuticals could work, if we decide that we want to move that way, because it’s extremely knowledge intensive. It’s an extremely innovation-driven industry.
One of the things that we would strongly consider is whether we could develop a comparative advantage here in Abu Dhabi, upon which to build a foundation. So if we believe that we can do that, and make money, then the chances are that we will expand pharmaceuticals into one of our verticals.
From a media perspective, if you look at Abu Dhabi, you see that there are institutions that already exist in the content space. So as media is becoming more interesting from an Abu Dhabi-agenda perspective, we look at it, and we ask: ‘Is there an area that we can deploy capital into – either creating new businesses, or supporting some of the businesses that Abu Dhabi already has – in a manner that is consonant with our vision?’
Where might Abu Dhabi have a comparative advantage in media or pharmaceuticals?
We’re still figuring it out. But compare it to industry, one of the existing verticals that we have. Industry to us is really defined by the aluminium space. Success in aluminium is based on having great logistics (being linked to transportation networks) and more importantly, energy. As a final element of value in aluminium, energy is really quite high. It’s very energy intensive as an industry. We believe that in Abu Dhabi, and the UAE, we have both those comparative advantages.
You see the proof in the pudding, in the sense that we partnered with Dubai Aluminium (best-in-class and also our neighbour) and we created Emirates Aluminium, Emal. Phase one is already operational, with750,000 tonnes per annum of production. We’re in the top quartile globally from a cost perspective.
We’re in the final stages of evaluating phase two: an expansion that will get us up to 1.3 million tonnes per annum. That will make us the largest single-site smelter in the world. So it’s not only financially significant, it’s also a great way to convert energy into something that’s more downstream than just oil and gas.
How was the energy side of the business a bridge to these other sector focuses?
Abu Dhabi has built up some expertise in the hydrocarbons space. We thought we would be able to leverage that expertise in countries outside the UAE. If you look at the national oil company today, it’s eminently focused on extracting oil and gas here at home.
We felt that we could lucratively pursue oil and gas interests outside Abu Dhabi. Fast forward a few years, and you have projects like Dolphin [Energy], and we have energy assets in Bahrain, Oman, in the Caspian and in South-East Asia. So we’ve turned the initial premise into quite a large business for Mubadala.
Energy was a bridge both in terms of the expertise and from a financial perspective. If you look at our revenue, our net income, in the early years of Mubadala, Dolphin made up the lion’s share. Dolphin was in many ways a defining project for us, both strategically and institutionally. It formed and vindicated the checklist that we’ve always had from an investment thesis perspective.
Why was Dolphin strategically important?
In Abu Dhabi, we’re quite long on oil, a little bit short on gas. We recognized that, and on the basis of a strong proposal from Qatar, we formed a consortium, and ended up digging 22 wells in Qatar’s Northfield.
We built one of the largest refineries in the world, splitting the dry gas from the liquid, of which we then sell a percentage in the open market. We built a 400km sub-sea pipeline to Abu Dhabi. Today you’re seeing about 2.1 million cubic feet of efficient, clean dry natural gas that gets pumped to us every day.
So Dolphin was not only a financially lucrative transaction for us. It has enabled a number of things to happen, not least of which is Emirates Aluminium. You’re also driving the growth of the country via the power sector and a lot of other things. Dolphin in many ways was our first, defining investment. It made us a bit different. Another element was the partnership: today we own 51% but we have Total and Occidental Petroleum as the two equal-weighted minority shareholders.
First and foremost, we wanted to make sure Dolphin was a successful business. We wanted to prove that we could take a large-scale idea and turn it into a large scale, profitable and functioning business. By proving that, we proved our mandate and our investment thesis: that we could deploy capital not only for returns, but for something greater. So we built Mubadala on the back of that proven concept.
It took seven years to get Dolphin from concept to operational and a lot of things happened in the interim. The day we switched on the gas was in 2007.
It doesn’t expand the scope of our economy, other than the fact that it helps diversify a main source of our revenue, geographically speaking.
We also have engineers and geologists, who are gainfully employed in some of those projects that we have in South East Asia and Kazakhstan. They get to move themselves forward technically. But oil and gas in many ways is the exception to the Mubadala rule, in the sense that, it’s a bridge: it was our main funding mechanism going forward.
You’ve grown rapidly in terms of assets over the past decade. Would you say you’re past the initial stage of growth, or was this just a prelude?
As an organization we are becoming more mature. At the beginning, we were growing quite rapidly in terms of assets under management, and in terms of people – whatever metric you want to use. We’re talking about growth numbers in excess of 25% every year for a sustained period of time, sometimes even hitting 40%. That’s quite fast.
Right now, we’re growing; it’s important to do that. We see opportunities every day. But nobody is going to replicate the growth rates you saw before.
One of things we’ve spent a lot of time doing for the past three or four years – and it has been a focus for the entire institution – has been the process of institutionalization, where we try to manage this growth by making sure we have the right processes, the right people and the right capabilities within Mubadala to be effective stewards of the government’s money. That’s a responsibility we take quite seriously.
Can you give me an example?
The most important thing we do at a most basic level is function as an investment company. We have an investment process within Mubadala that we think is quite mature. It probably isn’t any different from what you would see at a Carlyle, or at any other top-tier investment company. We have an investment committee. We have folks who make their cases. We tend to push that quite hard: the normal type of things you would expect when making an investment.
Why don’t you expect to replicate the previous levels of growth?
It’s theoretically possible, just not necessarily preferable. A lot of the growth rate happened because we’re in the business of building businesses. When you build 10 businesses from scratch, just imagine what the multiplier effect looks like! You tend to move quite quickly in the first couple of years. We had many businesses under formation. That was in many ways responsible for the growth rates you saw.
We are setting up new businesses every year. But to have a 25% growth rate on a AED100 million portfolio is different from having a 25% growth rate on a much smaller portfolio.
Tell me a bit more about the investment process. How do you make sure investments fit into the double bottom line as far as possible: how does that fit into the conversations you have?
These decisions aren’t random. As we think through what we’d like to be as an institution, every vertical we have, whether its industry or aerospace or the financial investments, are all governed by an investment framework or strategy.
In the case of General Electric, that [investment] fits into the financial investment category. Abu Dhabi and GE have had a great partnership, because Abu Dhabi has been a pretty big customer of GE for a long time – across its myriad business lines.
We don’t exist in a vacuum in Abu Dhabi. We see what is around us, and try to create businesses in relation to this. In this case, a few years ago, the CEO of GE, Jeff Immelt, had a great idea. He said: ‘I’d like Abu Dhabi to become more than just a bigger client of General Electric. We’d like to do something more: we want to move into a partnership.’
The first thing we did was to try to define the scope of the cooperation. He said: “It would be beneficial to me if we could have a stable shareholder in GE.” We replied that we’d have to look at that. It had to make financial sense on a standalone basis. We did the due diligence, looked at that, and cleared that hurdle from our perspective.
But that was not enough for us and as a result, a number of interesting developments came out of our relationship over the past three years, which I think have again proved the strategic case of our partnership.
One of the things was Mubadala GE Capital, a commercial finance venture, jointly owned 50/50 between Mubadala and GE.
When we invested the money and took the stake in GE, it was win-win in the sense that they got what they wanted and we felt we had a compelling financial case for our investment. It’s the same thing with the commercial finance venture: neither one of us would have put the money in if we didn’t feel it would be lucrative and add value to this part of the world, as well as create financial returns.
There are other elements to that partnership with GE. There are extensive partnerships in the renewable energy initiative, Masdar. GE has committed itself to creating a research presence in Masdar City. There’s a range of aerospace-related cooperation that comes on the back of this partnership: like the ability to service certain types of engine that GE manufactures that aren’t serviced in many other places in the world, thereby creating an interesting financial opportunity for some of the existing businesses that Mubadala has.
After the exploratory stage, at the beginning, we realized that obviously as an institution GE is much, much older than us. But we’re actually quite similar, in our culture, our passion for the businesses, and the kind of diversification we have. At all levels there’s a huge meeting of minds.
What initially started as an interesting conversation between Mr Immelt and Mubadala turned into a multi-faceted partnership that proved the case: turning a sound financial investment into a multi-faceted strategic engagement that was win-win for everybody.
How did this work with AMD?
AMD didn’t have the same background as GE in terms of its operations, but the initial approach was from them.
It usually starts from the same point: folks come here and they’re interested in having a financial shareholder. But we usually broaden the dialogue and see if we can’t shape it to something that fits within our mandate. AMD is a great case in point.
Prior to our investment in AMD, one of the things that AMD faced was that they not only designed chips but they also manufactured them. The cost of creating these manufacturing facilities was becoming prohibitively expensive. They weren’t able to generate enough internal cash to be able to fund these types of investment on a go-forward basis. So they said, look, if you invest in AMD, why not separate the design elements from the manufacturing elements? That’s what ended up happening.
We’re now the largest shareholder in AMD (we own 19.9%) and at the same time we created a company called Globalfoundries, which took the manufacturing assets out of AMD, and merged it with a Singaporean company called Chartered Semiconductors. Today, by revenue, Globalfoundries is the third-largest contract manufacturer of semiconductors in the world.
There’s also a non-financial element to what you’re seeing. The idea was to enable and build up Globalfoundries, starting with the AMD assets (which were very German-centric), adding Singapore (so that you have an Asian reach), and investing in the US via an upstate New York facility. Eventually, the culmination of this process will be the opening up of a fabrication facility here in Abu Dhabi.
That is important because our aim is to create a global platform that is geographically able to serve all the markets that we want. Also, there’s nothing more innovative than semiconductors. Having folks that can train in that sector, and having that facility in Abu Dhabi, which is profitable, and a centre for innovation, is obviously something that we believe will help diversify Abu Dhabi’s economy going forward.
ATIC was always part of Mubadala from an ideological perspective. We incubate a lot of things. The issue is whether they stay or get spun out, depending on where they are in the investment life cycle and so on. We felt that because of the size of ATIC, and because ATIC is the holder of the shares in AMD and Globalfoundries, and because of its importance to Mubadala’s revenue going forward, we thought that it was very important to bring ATIC formally back into Mubadala.
We want to have monetization events – exits, placements, or whatever else it might be – for all of our assets. The issue is whether they are ready, and how we want to do that. Sometimes it’s a full and outright sale – if it’s a financial type of investment. If it’s a strategic asset, we’re more likely to maintain some ownership over time, but we’ll still divulge [a portion of our holding].
Are you moving more into financial types of investment: simply for returns?
We have created in Mubadala an arm called Mubadala Capital. That’s the vehicle that takes financial positions. In many ways it functions like a long-short hedge fund, internal to us. Mubadala Capital trades on a daily basis. They trade in and out of different instruments, purely for financial gain.
We also have small LP positions as well, in certain funds. But we’re not a large traditional LP investor like the Abu Dhabi Investment Authority. We take these positions because of a specific interest. Most of the time when we do those large dispersals in LP positions, it’s because we have stakes in the general partnership, which makes us co-managers of the fund. That’s an interesting capability that we like developing. Or in a more limited manner, we’ll invest in funds to enter into new geographies: like the New Horizons Fund that we have in China.
Risk-reward is the lens through which we view everything. We’re quite well positioned in Western Europe and North America and we’re increasing our positions in the developing world. There’s no question that growth is going to come from that part of the world.
In a steady state, over time (we tend to think in five-year groups), I’d probably say [Mubadala’s international assets] will be split 50/50 developed world/developing world. At the moment I’d say it is 60/40 in favour of the developed world.
Real state remains an important element of development for Abu Dhabi and Aldar is an important holding for Mubadala.
We’ve been a shareholder in Aldar since its inception. We’re the ones that took it public. We’ve always believed that real estate would be an important element of growth in the entire country going forward. The difficulty is debt, what’s been happening in the markets – getting ahead of demand.
You saw that corrective action, driven by the global financial crisis: you saw it in Dubai, you saw it in some companies in Abu Dhabi. No question you saw it around the world. Everyone that invested in real estate has had to deal with the downturn and its consequences. We saw some of that in our US real estate holdings as well, some of that overextension.
Debt is an important element of real estate, so when you see debt suddenly getting more expensive or worse getting scarce and suddenly drying up, you see a huge amount of dislocation in real estate. That happened in New York, and that happened in Aldar, certainly.
No, we try not to get too political, because the best way to ensure the best return is to try not to overthink the issue. That may be something the shareholder thinks about, as they allocate money between us, and the Abu Dhabi Investment Authority, and some of the other vehicles the government of Abu Dhabi has. How they weight that depends on the kinds of priorities they have. I can’t speak for them.
But at Mubadala, everything we do is apolitical. We view things purely through the lens of business, and development for Abu Dhabi.
What about the importance of employing more local people, is that something you need to focus more on?
Yes, there’s no question. We view ourselves as an exporter of talent. Let’s start with attracting talent. Mubadala is owned by the government of Abu Dhabi. Mubadala is here in Abu Dhabi. So there’s no question that we’d love to have folks from this part of the world participate in the journey that Mubadala is undertaking. So it’s an important part of our recruiting; it’s an important part of how we think about it.
Right now, our Emiratization rate is 38%. We’re proud of that. That being said, Mubadala is quite large, quite geographically diversified, so it’s a company that welcomes everybody from everywhere. The only thing you have to be is smart, motivated, and fit in culturally with what we want.
Internally, over the next couple of years, we’d like to get to 45%. Steady state, we’d like to aim at 50/50 – within the pool of the 600 or 700 people we have at the headquarters, at the corporate level.
We spent a lot of time at the beginning thinking about who we could be similar to. But I think we’ve evolved into something that’s unique.
Everyone who charts their own trajectory can decide what they want to do. Mubadala has been an experiment that proved the case.
Mubadala right now is a mature institution. It’s part of the panoply of investment organizations that you have in Abu Dhabi. Each one serves a slightly different purpose, in terms of the vision, mission, the strategic direction, the geographies, their mode of investment whether direct or indirect, business building, or whatever else it might be.
From an Abu Dhabi perspective it creates optionality; it creates lots of different balance. It’s the shareholder that’s feeding all these different vehicles that do things slightly differently, all for the greater good of Abu Dhabi. Whether that’s appropriate for other countries in the region or other countries in the world is for other people to decide. But it’s something that I think has certainly created significant benefits to the people, and its shareholder.
