Wednesday Mar 13, 2019
A lot has been said, correctly and incorrectly, about Arif Naqvi in the global media after a commercial dispute with investors resulted in a dramatic collapse of private equity giant Abraaj Group.
The figures involved are staggering. In January 2018, the Abraaj Group was the largest private equity firm in the world in emerging markets; it had $14 billion of assets under management, close to 400 employees in 25 offices from Bogota to Istanbul to Nairobi and as far as Jakarta; its central headquarters and founding city though always remained Dubai. By the end of 2018, it looked as if all of those achievements had been squandered.
As liquidators prepare to sell the troubled firm’s assets and return remaining funds to investors, it may be time for a second look at Abraaj and its founder. Naqvi, a Pakistani man, was the first of his kind to break into the western world of finance and for years. He set an example for even other western firms to follow, as many lacked his deep understanding of emerging markets.
Naqvi was born in Karachi in 1960 to a middle class background. He went on to graduate from the London School of Economics, and after stints in the UK and Saudi Arabia, used $50,000 in savings to build a large multinational operating and investment business called Cupola in Dubai. Following Cupola, he built Abraaj – a private equity firm and the first of its kind in the world of emerging markets.
Prior to 2005, no Private Equity fund operating in emerging markets exceeded $150 million in assets. It is telling that Naqvi was the first to refer to these parts of the world not as “emerging” but “growth” markets. The firm pioneered a new approach, a method of investing that could not only create strong returns for investors, but also do good while making money. Abraaj had a dramatic impact on the society wherever it invested, enabling job creation and infrastructure growth at paces which outperformed the public sector.
A well known example was Careem, which Naqvi invested in through Abraaj during 2016. Two years later, when Abraaj achieved its exit, Careem had transformed mobility in Pakistan and beyond, with over 1,000,000 drivers across the MENA region. Abraaj was a large player in developing technology startups and entrepreneurship, starting Wamda, a tech platform which evolved into one of the largest VC firms in emerging markets. Naqvi also personally started and funded a joint vehicle called MENA Ventures which is said to have invested in over 100 startups in the region.
Naqvi was a regular on the speaking circuit, sharing platforms at the annual World Economic Forum gathering in Davos with the likes of Bill Gates. His prominent status at the nexus of East and West brought him into close contact with political leaders at home and abroad.
He is also known for creating the Aman Foundation, a philanthropic not for profit organization based in Karachi. The foundation is a social enterprise focused on health and education initiatives in Pakistan. Its flagship initiative, Aman Ambulance, is the first ambulatory vehicle network in Pakistan, providing round-the-clock emergency care in the province of Sindh. The ambulances are reported to have saved over a million lives since the start of the program. Its educational initiatives include Aman Tech, a vocational training institute established in 2011, which provides skills, knowledge, and hands-on training for youths, where thousands of students have been placed into jobs otherwise unattainable. Other educational programs include partnerships with UWC where the foundation created a scholarship program for Pakistani students. This work continues to be overshadowed because of the collapse of Abraaj.
K-Electric was a key asset of the Abraaj Group, after the group took out a $1 billion stake in 2008. At the time of the takeover, the firm had failed to make a profit for almost twenty years. It was suffering from endemic corruption problems, with mis-allocated funds often preventing energy from reaching the market, and was generally perceived to be operating in an unsustainable way – losing billions in revenue.
The successful turnaround of K-Electric brought interest from the Shanghai Electric Group, which agreed terms of purchase with Abraaj in September 2016. Regulatory obstacles however and unstable political conditions forced the sale to be stalled, causing an unexpected gap to emerge in Abraaj’s balance sheet, which Naqvi has previously stated was a contributory factor to the circumstances that led key investors to withdraw their funds at an inopportune time for the firm. Suspicions were also raised that biased incentives were involved in the deal’s postponement as part of a broader attempt to undermine Sino-Pakistan relations.
Today there remains optimism that Abraaj will complete the sale of its major assets, including K-Electric to Shanghai Electric Group, as part of the ongoing provisional liquidation process. It was recently announced that Abraaj’s provisional liquidators – Deloitte and PricewaterhouseCoopers – had been allowed more time to restructure the group’s assets for a period of six months. The firm is presently in the post-sale process for its Latin American assets with Colony Capital, with the sale of rights to manage other funds in Africa and Asia also proceeding.
Meanwhile in Pakistan, a series of unproven allegations regarding Naqvi appeared on national television. There appears to have been no effort on part of some media persons to verify facts. It was alleged that he sought an official position in Imran Khan’s government, but there has been no such discussion and Naqvi has sought no such role, according to his aides. There have been false reports about a “conviction”, “fines” and the fact that he cannot go back to the UAE.
As the provisional liquidation process continues, it has been reported in various articles that Naqvi is “committed to maximizing value for those creditors and allies whose supported him on this journey—often at his own expense.”
There is no doubt that mistakes were made and things could have been dealt with differently. Naqvi’s story is a lesson, his mistakes will not be repeated by the next firms or individuals who grow to similar heights. Nevertheless, a key point remains: thanks in no small part to the efforts of Naqvi and Abraaj, emerging markets have been opened up and have become a destination for investment. It stands to reason that he will one day be back, investing in emerging markets – whether it is creating jobs or creating schools, his business acumen will be valued in the years to come.