DUBAI (Reuters) - Abu Dhabi state investor Mubadala is considering options including the spin-out of an internally managed $500 million public equities fund after a weak performance, two sources said, as the emirate shakes up state entities amid lower oil prices. Mubadala Investment Co, which manages more than $230 billion in assets, plans to take a decision on what to do with its long-short public equities fund, part of investment arm Mubadala Capital, by early next year, the sources said. One of the sources said the fund - which is down to around $500 million in assets under management from a peak of $1 billion - could be either spun out or unwound. Long-short equity hedge funds, which bet on stock prices rising and falling, tend to protect investors from volatility by “shorting” -- borrowing a stock or security from an institutional investor, then selling it back when the price falls and pocketing the difference. One of the sources said Mubadala’s equities fund had piled up too many illiquid assets in its portfolio. “While we are pleased with the overall portfolio performance within Mubadala Capital, we’re in the process of re-organizing its structure,” a Mubadala spokesman told Reuters in an email. “As part of the re-organization, we have conducted reviews of our various Mubadala Capital businesses, including our public markets fund where the intention is to reduce our exposure over time.” Mubadala said the plan also includes an increased focus on its private market funds, including in its core private equity, venture capital and Brazil special situations businesses. “MORE COMMERCIALLY MINDED” The review comes after another Abu Dhabi sovereign fund, Abu Dhabi Investment Authority (ADIA), shut down a concentrated long-only equities fund, which managed nearly $5 billion at its peak, two sources said. ADIA, which is estimated to manage $710 billion in assets and invests only outside the United Arab Emirates (UAE), declined to comment. Over the past few years Abu Dhabi has reorganised state funds and government related entities to improve efficiency and save costs amid lower oil prices. This year it has consolidated under ADQ - a state-owned holding company - several strategic government assets, with the company taking a domestic economic development role Mubadala previously fulfilled. ADQ owns Abu Dhabi Ports, Abu Dhabi Airport and bourse operator ADX. It has also built up a portfolio of food and agriculture businesses and last month signed an agreement to acquire an indirect 45% equity stake in commodities trader Louis Dreyfus Co. “Mubadala’s new direction of travel... is to become more of an investment-led, financially-minded, commercial sovereign wealth fund, rather than the development, strategic fund it has been doing more of since its early years,” said a person familiar with Mubadala’s strategy. “It’s a natural progression of Mubadala’s expertise to become much more commercially minded, so there’s less room for underperformance and a sharper focus on returns.”