HBG targets $150m for AIM-focused fund

HBG Special Opportunities Fund I will focus on MENASA-based companies struggling on AIM. The fund is also the firm's first move into Shariah-compliant investing.

HBG Holdings has launched a Shariah-compliant private equity fund, HBG Special Opportunities Fund I. The fund will target struggling companies based in the Middle East, North Africa and South Asia (MENASA) but listed on London’s AIM market.

The news follows last month’s report that HBG had opened a London office and hired AIM veteran Michael Toxvaerd to spearhead its new focus on AIM-listed companies.

The total size of HBG Special Opportunities will be “nothing less than $150 million”, said Zulfi Hydari, group managing director at HBG Holdings, although he added there could be the opportunity to invest as much $500 million either through this fund or a subsequent fund. It has seed funding from HBG and has already garnered commitments from three strategic investors. Hydari said it was getting “very good feedback” in the market.

The fund is targeting small AIM-listed companies that are struggling in the current economic downturn.

“There is an opportunity because there is a dislocation. I wouldn’t call it distress, because I think many of the companies on AIM are not distressed – their shareholders may be distressed, the market is dislocated, and there is no debt in the market,” Hydari explained. “It’s not just a short term opportunity; in the medium term, a lot of these companies will have to think about how they’re going to fund themselves.”

Hydari explained HBG would be flexible when considering the best options for investee companies: “This is not just us wanting to take companies private only, we will also take strategic stakes and allow companies to remain listed and support them during this difficult time.”

The firm has two transactions in “advanced stages”, which will be funded out of HBG’s seed funding, and “a pretty decent pipeline of deals”, he added.

The move into Shariah-compliant investment was prompted by feedback from the firm’s clients, who are mainly based in Saudi Arabia and the Gulf region, said Hydari. While acknowledging Shariah-compliancy would limit the fund’s investment capabilities, Hydari stated he felt it was a necessary step given the growing sentiment in favour of Shariah-compliant vehicles among the Middle Eastern investor base.

The Special Opportunities fund is also Dubai-based HBG’s first closed-end private equity fund. Since the firm was founded in 2004, it has mostly concentrated on investing from its own balance sheet and on behalf of clients. It raised its first discretionary pool of capital, HBG Investment Holdings, in 2007, although this was not structured as a fund with a fixed term.

Hydari said this fund would lead a new push into third party fund management – although the firm was in no rush to launch successive funds.

“We have plans to roll out a series of products over a period of time,” he said. “But we are a boutique; we’re always looking for something quite different where we feel we can add value. We’ve got a few ideas on the drawing board, but one thing at a time.”