Dubai firm buys stake in US credit specialist

Dubai government-backed investment firm Istithmar World has agreed to acquire a majority stake in US asset manager Gulf Stream Asset Management in an effort to capitalise on credit market turmoil.

Under the agreement, Gulf Stream founder and chief executive Mark Mahoney and his team will continue to own the remainder of the company. No financial details were disclosed.

The investment was made via Istithmar World’s private equity and alternative investment arm Istithmar World Capital. The investment is in line with the firm’s strategy to move beyond its core focus on private and alternative equity investing into credit and credit-related activities, Istithmar World vice chairman Adel Al Shirawai said in a statement.

Istithmar World Capital chief executive David Jackson, said of the credit markets at the Milken Institute's Global Conference in Los Angeles today: “We’re going into some of these deals, pricing a deal, and the paper’s coming out at 100, and the day we ink the deal the banks are coming back and saying this paper’s now worth 80. Well, no it’s not. So we needed a vehicle to … capture some of that value.”

Charlotte, North Carolina-based Gulf Stream currently manages approximately $3.8 billion (€2.4 billion) of corporate credit portfolios for global institutional investors.

Jackson continued: “We feel the professionals at Gulf Stream, with their credit business and their credit background and their platform offered an opportunity … to go after opportunities that we’re seeing in the credit markets.”

Istithmar World, formerly known as Istithmar, rebranded itself earlier this year as the group sought to diversify. As part of the rebranding, the firm divided into three divisions, the private equity arm Istithmar World Capital, the aviation unit Istithmar Aviation and the venture division Istithmar Ventures. The firm also has a real estate arm.

Established in 2003 with an initial investment pool of $2 billion, Istithmar World is wholly owned by Dubai World, which is in turn owned by the government of Dubai. The firm has deployed more than $3 billion of capital to date in the real estate, consumer, industrial and financial sectors.

Istithmar World Capital opened its first international office in Shanghai, China in November of last year.

Like numerous Middle Eastern firms Istithmar’s investments have been eye-catching. In September 2007 it bought US department store Barneys for $924.3 million and acquired a 3 percent stake in European hedge fund GLG in July for an undisclosed sum.

A number of Middle Eastern investors, particularly sovereign wealth funds have purchased stakes in asset management companies recently. In October 2007, Dubai International Capital bought a 10 percent stake in hedge fund Och-Ziff Capital Management, while in September 2007, Carlyle sold a 7.5 percent stake worth $1.35 billion to the Abu Dhabi Government fund, Mubadala. The Abu Dhabi government also backed Apollo last year, with a $1.5 billion investment for a 10 percent stake.