Mid East PE firm partners to raises $2B fund

Abraaj Capital, a Dubai-based private equity firm, has formed a joint venture with Deutsche Bank and Ithmar Bank to raise a $2 billion Shariah-compliant alternative assets fund.

The Infrastructure and Growth Capital Fund would be the largest such fund announced to date in the region and will be managed by Abraaj.

Deutsche Bank and Ithmar, combined, will contribute about 10% of the fund’s capital.

The fund will take majority and minority stakes in greenfield projects, participate in large scale privatizations and invest in buyout and restructuring opportunities in such sectors as telecommunications, energy, water, roads, health care, education and oil and gas.

Abraaj had been investing a $500 million buyout fund, Abraaj Buyout Fund II, which invests in Middle East companies.

Abraaj announced that it plans to soon hold a first close of about $750 million in capital raised. LPs have not been named, but investors in previous Abraaj funds have included Dubai International Capital, the private equity investment arm of Dubai Holdings. Other past LPs include regional pension funds, financial management groups, insurance companies, banks and high net-worth individuals.

Unlike many other funds currently being raised in the Middle East, Abraaj’s new fund will have a fixed life of 10 years, rather than being an evergreen, publicly listed investment fund.

Sources in the Middle East have told PE Week that the rapid build-up of new firms and funds in the area is partly the result of oil-driven wealth being generated in the region. “But these many [Middle East] funds represent a coming of age by the financial management and investment community in the region, which in the past looked to the U.K. or the U.S. for assistance in investing funds,” said one source, who wished to remain anonymous.

Abraaj was founded in 2002 by CEO Arif Naqvi and several of the firm’s directors, who are also investors in the firm. The firm has made headway towards becoming one of, if not the most, active PE firm in the region. And despite its youth, Abraaj has already had notable exits, including the June 2005 IPO of Aramex, a Jordan-based Nasdaq listed air freight and courier company that was de-listed and subsequently re-listed on the Dubai Financial Market as the most successful of the first fund’s two exits to date. Aramex returned $192 million or 6.5X on the firm’s investment.

In addition to being one of the largest private equity funds raised in the Middle East, the fund will be the largest Shariah complaint fund worldwide. Shariah compliance means that the fund will adhere to Islamic investment principles, including prohibitions for investing in weapons, pornography, gaming, certain areas of food production, media and advertising. Sharih complaint funds and Islamic funds are one of the fastest growing segments of the private equity world as more and more petro-drive dollars are invested from oil-rich Middle East countries.