Unlock the Publisher’s Digest for free
Roula Khalaf, editor of the FT, selects her favorite stories in this weekly newsletter.
The Abu Dhabi Investment Authority is trying to capitalize on Western investors’ retreat from China by offering to buy their holdings in funds managed by Hong Kong-based PAG at a discount.
The move from Abu Dhabi’s main sovereign wealth fund, described by four people familiar with the matter, is a sign of how some Gulf investors are looking to strike deals as U.S.-based investors reduce their exposure to China.
“It’s a transition on the part of US investors who [previously] it favored China, over Middle Eastern investors who don’t have the same concerns as them,” said a person briefed on the plans.
PAG, in which Blackstone holds a minority stake, has built a reputation for offering global investors access to operations in China, using connections forged by its chairman Weijian Shan, who sits on Alibaba’s board of directors.
One of Asia’s largest private equity groups, managing more than $55 billion, its investors include state pension schemes in California, Texas, Florida and Iowa, as well as investment funds in Canada, Australia and across Europe .
It has faced difficulty raising a new fund since Shan criticized Beijing in 2022. PAG filed for a $2 billion initial public offering in 2022 in a deal that would have valued it at up to $15 billion, but the listing did not materialize.
According to data from the London Stock Exchange Group, four of PAG’s five largest deals since 2019 have taken place in China. They include investments in Dalian Wanda mall operator Zhuhai Wanda and online video platform IQIYI.
As of June last year, two of the funds in which Adia is offering to buy stakes – raised in 2015 and 2018 – had returned just 53% and 13% of the amounts investors paid, according to documents filed by Calstrs. , a US teachers’ pension scheme. PAG’s first buyout fund, raised in 2012, had given investors 1.8 times the money paid in by the same date.
Buyout funds typically aim to return investors cash, as well as returns, within a decade.
PAG, which also invests across Asia in credit, real estate and private equity, had raised about $3 billion for its planned new fund earlier this year, according to four people familiar with the situation. Two of those people said they had previously told investors the goal was to close the fundraising by the end of 2023.
According to Reuters, his original goal for the fund was $9 billion. According to documents filed with the US Securities and Exchange Commission, it had raised just $2.2 billion as of March last year.
Under the deal, Adia – which has a long-standing relationship with PAG – will offer to buy investors’ shares in PAG funds at a discounted price, in a transaction that the buyout firm would facilitate. Investors could choose whether to sell their shares.
A PAG investor said the buyout group brokered the deal with Adia to give others a chance to exit because “they want [investors] who are engaged in ongoing investments in China, many of them US and European [groups] they are not”.
Adia declined to comment. PAG did not respond to repeated requests for comment. In early March a PAG spokesperson said it was “definitely incorrect” to say it had raised $3 billion, adding: “We cannot give a figure yet because the fund has not been closed.”
Pension funds and other investors in the United States are increasingly wary of investing in China. Geopolitical tensions have triggered US restrictions on investment in the country, while a crackdown by Beijing has made it harder for Chinese companies to list overseas.
Some of the money from two PAG funds is invested in Chinese industrial gases company AirPower Technologies, which PAG originally backed in 2017, the sources said. PAG has agreed to sell AirPower, but regulators have not yet approved the sale, they added.