The Four Seasons Resort in Dubai glittered with the most influential members of the private equity industry as Abraaj Group presented investors with their future.
Over the course of several days in March 2017, the giant of emerging markets investing unveiled its grand plan: a $6 billion global private equity fund that would draw on the expertise of all its investment professionals around the world to back around 50 portfolio companies.
“It was really compelling,” one service provider who was present told Private Equity International.
Abraaj spoke about emerging economies in terms of the economic viability of cities, and all but identified the specific companies in which it would seek to invest, the service provider said.
“Their data was really good. They’d done a lot of work. It was compelling, it was thoroughly thought-through, it was extremely well-articulated.”
Just a year later, Abraaj is releasing its investors from their commitments to that fund.
“Abraaj has voluntarily released investors from their commitments in Abraaj Private Equity Fund VI, and no longer intends to proceed with this Fund in its current form,” the firm said in a written statement sent to PEI.
“In light of our ongoing reorganisation, we believe this is a prudent step and is aligned with our longstanding commitment to investors. Abraaj will restart fundraising discussions with investors once the reorganisation and strategic review are complete.”
The firm said it would continue to “actively engage” with investors throughout the process. The fund had attracted $3 billion in commitments so far.
News of the fund’s suspension and intention to return capital to investors was first reported by Reuters.
Sources PEI spoke with indicated that such a move was rare, but not unprecedented.
If, for example, the fund manager realises part way through a fundraise that it can’t reach enough capital to build an unconcentrated portfolio of investments, that opportunities within its investment strategy are not as abundant as it thought, or a key person departs, this could be the outcome.
None of these situations appear to apply to Abraaj.
The situation began to unravel last month. First came media reports that the firm might have misappropriated money from its $1 billion 2015-vintage Abraaj Growth Markets Health Fund. Four blue-chip LPs in the vehicle – The Bill & Melinda Gates Foundation, the World Bank’s International Finance Corporation and government-backed development finance institutions CDC Group and Proparco – had hired an auditing firm to help trace capital that was to be invested in medical projects in India, Pakistan, Kenya and Nigeria.
Abraaj – which said in a statement the reports were “inaccurate and misleading” and that it returned the unused capital from the health fund to all investors at the end of December – appointed KPMG to audit the vehicle.
A few days later Abraaj released a statement conveying the findings of that audit: “all such payments and receipts have been verified, in line with the agreed upon procedures performed, and that unused capital was returned to investors”.
Two weeks after that, Abraaj announced its founder and chief executive Arif Naqvi had stepped aside, passing leadership of the firm’s fund management business to two co-chief executives, Omar Lodhi and Selcuk Yorgancioglu, as part of a “comprehensive reorganisation to pave [the] way for future and sustainable growth”. It had also stopped fundraising and capital deployment.
The reorganisation included the separation of Abraaj Investment Management Limited – which would be led by Lodhi and Yorgancioglu as co-chief executive officers – and Abraaj Holdings, which would be managed by Naqvi.
According to the statement, Mustafa Abdel-Wadood, Wahid Hamid and Sev Vettivetpillai will continue their full-time roles as members of the global investment committee and as managing partners of AIML with oversight responsibility on the executive committee of AIML “to ensure an orderly implementation of the new management structure and governance systems”.
Last week, the Wall Street Journal reported that a team of executives that joined the firm in 2016 to develop energy projects had left and formed a new partnership with Houston-based private equity firm Denham Capital.
Use the arrows to explore the timeline below.
As of Tuesday morning, the firm’s “team” page on its website was blank, with a message reading: “This page will be updated shortly. Thank you for your patience.”
What does it mean for the rest of the emerging markets private equity community that a $6 billion fund is no longer in the market? The optimistic way of looking at it would be to say there’s $3 billion of private equity capital – the amount Abraaj was thought to have raised for the vehicle – earmarked for emerging markets and looking for a new home. The pessimist might argue that – while governance issues such as those that seem to be at play here are a firm-specific phenomenon – investment committees at more conservative investors could be more wary when committing to emerging markets funds. It could take a while to win back that trust.