Friday Letter: Shinsei on the Nile

A deal was announced this week that may serve as a template for the future of the alternative investment industry, crazy as this may seem. To wit, a New York buyout firm has teamed with its affiliated Japanese holding company which is listed on a Belgian stock exchange to co-invest in a Cairo-based bank together with a hedge fund that has a side pocket for private equity deals.    

The deal brings to life all the talked-about trends of the past year – emerging markets, publicly listed private equity, hedge fund convergence and, of course, globalisation. No surprise, then, that Tim Collins is behind this one. Let’s have a closer look at it.

Earlier this week, the strangest vehicle in all of private equity, RHJ International, announced that it would buy an almost 19 percent stake in Egyptian bank Commercial International Bank SAE for €190 million ($228 million). Co-investors in this deal include hedge fund Eaton Park and New York buyout firm Ripplewood Holdings.

RHJ International is traded on the Brussels-based Euronext exchange. It used to be a private portfolio of investments made by Ripplewood Holdings from a partnership dedicated to Japan, but was bundled up and taken public last year, to the consternation of some LPs. Tim Collins, the founder of Ripplewood, has said that a public listing gives the vehicle more flexibility, and that the Belgian home gives it better corporate governance.

Collins, who owns an 8 percent stake in RHJ International, is non-committal about whether he will raise another traditional private equity fund, given the success he has had with the Euronext listing.

Egypt is among the more frequently mentioned target countries for private equity in the Middle East and North Africa because of its large population and relatively advanced markets. And while India and China are by far the most popular destinations of the ongoing emerging markets party, the past year has been the most significant ever for the development of private equity in the Middle East, with this Commercial International deal no doubt declaring an open season for Western investors.

Eaton Park is a hedge fund, sort of. The firm, led by former Goldman Sachs trading wunderkind Eric Mindich, raised $3 billion in 2004, but imposed three-year capital lock-ups where other hedge funds typically allow quarterly or monthly liquidity. The structure better allows the firm to engage in longer-term, illiquid investing, aka private equity. How Eaton Park got invited into this deal, as opposed to an established private equity firm, is no doubt an interesting story but one we don’t yet know.

Ripplewood has a long track record, but it is best known for its astonishing success with Shinsei, the once-busted Japanese bank that in 2000 most Western investors wouldn’t touch. The Shinsei deal is seen by many as the beginning of the end of Japan’s long recession. With Collins and company, in one fell swoop, lending further credibility to hedge fund convergence, the emerging markets and the permanent capital base of a public

entity, these trends now seem all but unstoppable.