What Led the Middle East’s Top Dealmaker to Step Down: QuickTake

(Bloomberg) -- The Middle East's biggest private equity dealmaker is stepping aside under a cloud of controversy. Arif Naqvi ceded control of the fund-management unit of his Abraaj Group in February on the heels of allegations that money in the company's health fund had been misused. Naqvi and the company denied any wrongdoing and blamed unforeseen political and regulatory hurdles for a delay in deploying the money. The fund, which invests in hospitals in some of the poorest countries in the world, is a model for replacing aid with accessible, affordable and quality health care using private financing.

1. What's special about Abraaj?

The 400-person firm has grown to become one of the largest private equity groups in the emerging markets -- "growth markets," as Naqvi prefers to call them -- with $13.6 billion in assets under management. From its roots in the Middle East, Abraaj now invests in private equity, health care, clean energy, lending and real estate across Africa, Asia, Latin America and Turkey. According to its website, the firm's $1 billion health-care fund focuses "on improving care in the fields of non-communicable disease and mother and child health in 10 cities, including Lagos, Hyderabad, Karachi, and Nairobi." The fund owns 24 hospitals, 17 clinics and 30 diagnostic clinics across India, Pakistan, Nigeria and Kenya with over 3,200 patient beds.

2. Who invests in its funds?

Abraaj attracts investors, including foundations, sovereign wealth funds and pension funds, pursuing higher returns alongside social goals. The Bill & Melinda Gates Foundation, the World Bank's International Finance Corp. unit and two government-backed development finance organizations, CDC Group Plc and Proparco Group, are among some two dozen investors in Abraaj's health fund, and they hired a forensic accountant to examine what happened to some of their money, the Wall Street Journal reported on Feb. 2. (The Seattle, Washington-based Gates Foundation is the world's largest private philanthropic organization.) Dutch health-equipment company Royal Philips NV, another investor in the health fund, said in a statement on Feb. 5 that it "remains aligned with the fund's efforts and objectives." Private-equity investors usually commit capital for five to seven years, making it a highly illiquid investment.

3. What happened to the money in question?

Abraaj says it's all properly accounted for and that some unused capital from its health fund -- it didn't say how much -- was returned to investors. It dismissed questions over disappearing money as “inaccurate and misleading" and said it worked with KPMG “to verify all receipts and payments made by the fund." It said the discrepancy between the money it collected and the money it invested was due to delays in its projects. The health fund also invests in greenfield and brownfield projects unlike standard private equity funds and so the timing of the deployment of capital is less predictable, Abraaj said. Retaining capital where an investment is delayed also met the terms of the fund's limited partnership agreement, it said.

4. What changes has Abraaj made?

It said it's separating Abraaj Holdings, the parent company, from Abraaj Investment Management Ltd., which manages the private equity funds. Naqvi will remain the chief executive officer of Abraaj Holdings. He will also retain a non-executive role on the fund division's investment committee and remain its chairman. Two younger executives, Omar Lodhi and Selcuk Yorgancioglu, become co-chief executive officers of the fund manager. No new capital commitments will be made until the reorganization is complete. Naqvi said in an interview last month that he'd outlined his plans to transition from his role and separate asset management from the holding company in a January 2017 memo to staff. The moves were accelerated by the recent news reports, he said.

5. Who is Naqvi?

A pioneer in the Mideast buyout market, Naqvi, 57, has been a conduit to the developing world for socially responsible global investors like Gates. Born in Karachi, Pakistan, Naqvi graduated from the London School of Economics, began his career in accounting at Arthur Andersen LLP and worked in Saudi Arabia for billionaire Suliman Olayan. He founded Dubai-based Abraaj in 2002 and worked with Gates on health-care projects in Africa and Asia since 2014. Abraaj began raising money for its health fund in 2015.

6. What's next for Naqvi?

He will spend his time thinking about “how private capital can serve the needs of communities that need it," and how to achieve social development goals, he said in the interview. He will no longer be involved in executing deals, governance, reporting structures and the day-to-day running of Abraaj's fund management business.

The Reference Shelf

• Bloomberg stories on the management shuffle at Abraaj and what the firm said about its review by KPMG.
• A 2015 Forbes magazine story on Abraaj's "stunning rise in global private equity."
• Gates and Naqvi spoke together at the World Economic Forum in Davos.

--With assistance from Archana Narayanan

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net.

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Dana El Baltaji at delbaltaji@bloomberg.net, Laurence Arnold

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