Mubadala Investment Co. said it will be an anchor investor in a new special situations fund set up by Starz Real Estate, as deep-pocketed Middle Eastern investors play an increasingly pivotal role in private credit.

The Starz Orion Capital fund will target real estate lending and investment opportunities across Europe for refurbishment and redevelopment, according to a statement on Wednesday. It will also support the acquisition of distressed debt and non-performing loans and acquisition of real estate securities.

Starz Real Estate didn’t say how much Mubadala is investing, but said it expects to raise a further 300 million euros ($327 million). In 2021, Mubadala — which manages $276 billion of assets — provided the anchor investment for the Starz Zenith Capital Ltd. fund.

Mubadala’s commitment reflects continued increase in “exposure to alternative investments, including in private credit, to achieve stable financial returns,” Khadija Benzit, head of European real estate investments at Mubadala. “With the current market environment, private credit is playing a bigger role in supporting real estate players.”

Sovereign wealth funds are increasingly pushing into the $1.6 trillion private credit market, which has been gaining traction over the past few years as investment banks and traditional debt investors pulled back from leveraged debt amid fears around rate rises and an economic slowdown. Investors seeking higher yields have poured money into the asset class, turning it into a thriving market.

Meanwhile, housing markets across Europe are struggling as higher rates and soaring construction costs have threatened to intensify supply strains.

“As market dynamics continue to evolve, the fund is well-positioned to provide flexible, tailored and timely solutions to meet the ever-changing needs of real estate investors and developers,” Starz Real Estate Chief Executive Officer David Arzi said in the statement.

--With assistance from Shaji Mathew.