Emerging markets Africa: the Abraaj pitch

The Gulf-based firm's global ambitions are characterised by its single emerging-markets fund.

Any listed private equity giant will tell you scale breeds scale. Large institutional investors are as interested in deploying sizeable slugs of capital as they are in capturing one or two extra basis points of alpha.

For a stratum of institutional investors, seeking to commit tickets of more than $100 million per fund but not account for more than 10 percent of the fund’s total, the bigger the fund’s target, the better.

In this context, the Abraaj Group’s move to raise one large global emerging markets fund – rather than continue raising regional- and country-focused funds – makes sense. Market sources say the raise is making good progress, although details of a first close remain unclear. The fund is understood to target $6 billion, but an Abraaj spokeswoman declined to comment.

For investors looking to commit to global emerging markets – and in volume – there are not many options for “one-stop shopping”. Actis closed its last global private equity fund on $1.6 billion in 2012, currently the largest single pool of capital in the market, but the other mega-funds capturing emerging markets returns are region-specific.

What constitutes “emerging markets returns” is not always clear. Most would associate these with an EM premium, but, as one investor told Private Equity International, this is not necessarily the Abraaj pitch. Instead, it is targeting returns comparable with large buyout funds in developed markets. However, the risk profile of the fund will differ from its similarly sized Western peers: growth capital, more sparing use of leverage and a vastly more diversified portfolio (the fund could invest in up to 50 companies compared with the more typical 10 to 14).