Abraaj investor Hamilton Lane among several warned about fund

LONDON • Five months before the events that led to the collapse of Abraaj Group, the biggest in private equity history, one of the firm’s investors was warned about putting more money in, according to an email chain reviewed by Bloomberg News.

At least two senior executives of Hamilton Lane Inc received an anonymous email in September 2017 advising them not to invest in a planned Abraaj global emerging-markets (EMs) fund, the emails show.

The warning was also sent to several other institutions that were potential investors in the fund, said a person with knowledge of the matter, who asked not to be identified because it is private.

The email, with the subject line “Abraaj Fund 6 Warning”, alleged that the buyout firm was overvaluing holdings to falsely suggest they were profitable and to boost its track record.

In addition, the email claimed, most of the deals in the pipeline for the planned fundraising were “dead” and Abraaj knew it.

“The governance is not what it appears but employees are afraid to speak or partners entrenched so don’t speak,” the email read. “There is no smoke without fire. Be the hero in your firm and uncover the truth by asking simple questions.”

Despite the warning, the Pennsylvania- based investor agreed to commit more than US$100 million (RM414 million) to the fund, people with knowledge of the matter said. The fund never closed, so Hamilton Lane didn’t lose any money on it.

One of the Hamilton Lane executives forwarded the email to Abraaj founder Arif Naqvi (picture) and a former employee, Mark Bourgeois, the chain shows. A representative for Naqvi’s lawyer wasn’t immediately available for comment. A call to Bourgeois’ new employer, Courage Capital Management, wasn’t immediately returned.

Hamilton Lane raised the matter with senior Abraaj staff right away and asked the company to provide documents to substantiate claims it made in raising money for the new fund, one of the people said.

It was the first time Hamilton Lane had committed money to a primary fundraising by Dubai-based Abraaj, one of the people said. Its only previous exposure to Abraaj was through a secondary-market investment it made in a series of Abraaj funds in 2015, the person said. In its earnings presentation in November, the company said its Abraaj-related financial exposure was US$382 million, accounting for less than 1% of its overall assets under management.

After allegations emerged in early 2018 that money in Abraaj’s healthcare fund had been misused, Abraaj decided against raising the new fund after all and returned about US$3 billion of capital to the investors.

Abraaj, which managed almost US$14 billion, had become one of the world’s most influential EM investors, with stakes in healthcare, clean energy, lending and real estate across Africa, Asia, Latin America and Turkey.

It was forced into liquidation in June after a group of investors, including the Bill & Melinda Gates Foundation, commissioned an audit to investigate the alleged mismanagement of money in the healthcare fund.

That had a ripple effect on private equity activity in EMs, and local buyout activity in the Middle East came to a near standstill. The collapse led to a probe by US regulators and to the arrest of Naqvi and Mustafa Abdel-Wadood, a former managing partner.

Naqvi, who founded the firm in 2002, is charged with inflating the value of the firm’s holdings and stealing hundreds of millions of dollars.

He denies the accusations. He was released on bail of £15 million (RM81.75 million) last Thursday. A London judge last Friday dismissed prosecutors’ bid to keep Naqvi in custody while he fights extradition to the US. Naqvi was granted bail last Friday.

The bond amount is the largest security ever ordered in the UK, according to Naqvi’s filings for last Friday’s hearing.

Abdel-Wadood was charged with fraud and conspiracy and has pleaded not guilty. He was released earlier to home confinement on a US$10 million bond. — Bloomberg