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Mubadala Capital’s $3bn bid for Fortress Investment Group, a powerhouse investor in credit markets with a large bet on US rail infrastructure, has cleared a significant regulatory hurdle after the parties agreed to important concessions.
The Committee on Foreign Investment in the United States had approved Fortress’s sale of a majority equity interest to Mubadala, the investment arm of Abu Dhabi’s almost $300bn-in-assets sovereign wealth fund, three people briefed on the matter said.
The clearance comes after Mubadala agreed to let the investment group commit to keeping data and technology inside the US, on top of an earlier pledge to waive day-to-day control over Fortress. The new concession comes as Washington is increasingly focused on protecting US intellectual property, spanning cyber security software and data algorithms, the sources noted.
Gaining approval from Cfius marks a significant milestone in closing a transaction that was first agreed roughly a year ago with the current owner of Fortress, Japan’s SoftBank.
By agreeing to waive day-to-day control over Fortress, which manages $48bn in assets, Mubadala has struck a similar arrangement to that agreed by SoftBank when it purchased the firm in 2017.
The Financial Times first reported that Cfius was scrutinising the transaction last July, amid concerns in Washington over the UAE’s ties to China. The deal has been seen as a test of officials’ comfort with large Middle Eastern funds taking direct ownership of US investment groups.
Fortress, Mubadala and the US Treasury Department declined to comment.
The asset management industry is undergoing a wave of consolidation as large investment groups such as BlackRock, Franklin Templeton and T Rowe Price push beyond their roots in listed markets, using acquisitions to build their exposure to the faster-growing world of private investments.
Banks and insurance companies have also created significant partnerships with private equity and credit groups such as Blackstone and Warburg Pincus, seeking their investment expertise.
Private market assets under management have grown nearly 20 per cent a year since 2018 and reached $13.1tn as of last June.
The Fortress deal will propel Mubadala, which is run by chief executive Khaldoon al-Mubarak, into the ranks of the world’s largest credit investors.
Sovereign wealth funds such as Mubadala have increasingly sought closer ties with the largest and most successful US investment groups, which in turn are seeking to win investment mandates in the Middle East.
Mubadala holds a minority equity interest in US technology private equity group Silver Lake and has created large lending and investment partnerships with Apollo Global.
BlackRock meanwhile struck a deal last month with the Saudi Arabian government to open a multi-class investment firm in Riyadh, anchored by a $5bn mandate from the kingdom’s Public Investment Fund.
From the outset, the Fortress sale was structured to appease regulatory concerns. Though Mubadala is buying a controlling 70 per cent interest, Fortress employees will gain control of the investment group with majority control over its board.
The board control structure is meant to allow Fortress to have its operations run independently of Mubadala’s broader investment portfolio, giving its employees full control over their investment decisions and fundraising efforts.
Fortress executives would have the ability to increase their ownership of the investment operation in the coming years, depending on its performance, with the possibility of eventually retaking majority ownership, people briefed on the matter said.
