Malaysia’s CIMB Aims To Close Fifth Fund

CIMB Private Equity, the private equity arm of Malaysia’s largest investment bank, CIMB Bank, expects to hold a final close on $35 million for its CIMB PE Fund I by the first quarter of 2006, PE Week has learned.

Once closed, the firm’s fifth fund will bring the firm’s total assets under management up to about $150 million, making it Malaysia’s third largest private equity investor after Navis of Malaysia and Actis of the United Kingdom.

Darawati Hussein, the director of private equity at CIMB’s Kuala Lumpur headquarters, says that the latest fund will have a larger regional focus than earlier funds. About half of the $35 million will go to Malaysian investments, and the remainder will invest in Singapore, Indonesia, Thailand and Vietnam.

Hussein says that he expects the fund to back more than a dozen companies over its eight-year life.

CIMB is typically a late stage, minority investor that prefers to take a board seat with each investment.

Similar to its predecessor funds, CIMB PE I is a Shariah complaint fund that adheres to Islamic Law. The main tenets of Shariah are that certain sectors are prohibited from investment (such as weapons, alcohol, entertainment, finance and pornography). Investors are directed to invest in companies that seek to better the world.

Also, the capital structure of portfolio companies must not contain in excess of 30% of assets as debt, and the portfolio company cannot earn more than 15% of its returns through interest payments.

The concept of religious involvement in business, let alone private equity transactions, may appear incongruent. But Islam’s guiding text, the Koran, provides strict guidance for banking and business, including the requirement that investors must have aligned interests by agreeing to share in profits and losses. It also stipulates a requirement for integrity in business transactions and to avoid exploitation of others.

Given the large amount of capital flowing to the oil-rich Muslim countries of the Middle East, and Islam’s admonition to its adherents to “invest in the faithful,” CIMB Bank and its PE group appears poised for more rapid growth over the next decade.