US national security officials are scrutinising an Abu Dhabi sovereign wealth fund’s planned $3bn takeover of New York-based Fortress Investment Group amid concerns in Washington over the UAE’s ties to China, people close to the situation told the Financial Times.
The review by the Committee on Foreign Investment in the United States, an inter-governmental agency that vets whether deals can harm national security, is in its early stages and a decision is not expected for several months, the people added.
Abu Dhabi’s Mubadala agreed to buy a majority stake in Fortress, which manages about $46bn in assets and specialises in distressed debt investing, in May from Japan’s SoftBank Group. Mubadala, which is run by chief executive Khaldoon al-Mubarak, said that it intended to close the deal in the first quarter of 2024, subject to regulatory approvals.
Mubadala and Fortress declined to comment. The US Treasury, which oversees the Cfius process, said it did not comment on transactions that it “may or not be reviewing” but added that it was “committed to taking all necessary actions within its authority to safeguard US national security”.
The Cfius action comes as the Biden administration steps up scrutiny of China-related investment and prepares to unveil an executive order that would require US companies investing in certain sensitive sectors — including semiconductors, artificial intelligence and quantum computing — to notify the federal government. It would also prohibit investment in certain areas.
The FT previously revealed that Cfius, which can require steps to mitigate its concerns or block a deal outright, intervened in SoftBank’s 2017 takeover of Fortress. Cfius forced SoftBank to relinquish day-to-day control over Fortress and took further steps to monitor SoftBank’s level of direct influence on the investment firm.
At the time, the FT reported that Cfius was concerned about some of SoftBank’s investments, which included a large stake in China’s Alibaba Group, and the business links of its founder Masayoshi Son.
Mubadala acquired a near 10 per cent stake in Fortress in 2019 and received Cfius clearance for that purchase, according to people with knowledge of that review. However, a new review is needed for its plan to purchase a further 60 per cent in Fortress, the people added. As part of the deal, Fortress insiders would own the remaining 30 per cent with a special class of shares that allows them to appoint a majority of its board.
Mubadala has other investments in the US, which include a stake in US private equity firm Silver Lake thanks to close relations between its co-chief executive Egon Durban and Mubarak.
One expert in the Cfius process told the FT that there are likely two reasons the inter-agency body will take a close look at the planned Fortress takeover, including growing concerns in Washington over budding relations between Abu Dhabi, the capital of the United Arab Emirates, and China.
This person said: “What we are also witnessing in the pendulum swinging back to where sovereign wealth funds are under increased scrutiny,” referring to the period after Cfius investigated a deal for Dubai Ports World to buy P&O, the UK-based port operator.
Cfius approved the deal in 2006, but following uproar from US politicians, including then-senator Hillary Clinton, the UAE compelled DP World to relinquish control of five port terminals in the US that it acquired in its purchase of P&O.
The US concern was not about China, but about its ports being vulnerable to terrorist attacks. US lawmakers alleged that Dubai was a transfer point for nuclear-related components to Iran, Libya and North Korea.
The Biden administration has been concerned about indications that China was building a military facility at Khalifa Port in UAE, as part of an effort to project military power. China has one international base, located in Djibouti, and is building another naval facility in Cambodia.
In September last year, President Joe Biden also issued an order telling Cfius to pay close attention to deals involving critical technologies, including AI, quantum computing and biotechnology. While the order did not name China, the industries are frequently mentioned by US intelligence agencies as ones where China is trying to obtain US technology.