Capital ideas

Not only is Abraaj Capital the only private equity group in the global top 50 that is based outside Europe and North America, it is also a strong believer in putting back into the community. Vision speaks to founder and CEO Arif Naqvi about how the company is helping entrepreneurs prosper and connect across the region

When Arif Naqvi speaks, hundreds of thousands of people get the message. The 51-year-old founder and Group CEO of private equity (PE) giant Abraaj Capital is an industry legend across the broad group of economies labelled ‘emerging markets’ – although it’s a collective phrase with which the Pakistan-born, LSE-educated financier is less than enamoured.

“I hate the term ‘emerging markets’, but in tomorrow’s globalised, interconnected world, growth is going to come from urban communities in those markets that are today called ‘emerging markets’,” he insists, easing into a comfortable chair in his office at Dubai International Financial Centre (DIFC).

‘For way too long private equity has had this image of being the alchemist’s box. Very, very smart people put their hand into the box, and they bring it out and base metal has been turned into gold. It’s not that, it’s actually the most practical industry you can imagine. It’s about understanding the nuts and bolts of the fundamentals of business’

“These are growth markets, they are about communities that are disadvantaged, and so businesses that turn to those communities and help them are going to be businesses with a competitive advantage,” Naqvi continues.

It is a philosophy that has proved hugely successful. Abraaj is today the top PE group in emerging markets worldwide, according to London-based Private Equity International (PEI), the leading magazine for the PE industry. “The Middle Eastern behemoth… continues to dominate the emerging market global fundraising scene,” says PEI of the only PE group in the global top 50 that comes from outside North America and Europe.

Founded in 2002, the firm approaches its 10th anniversary with US$6.2bn (Dh23bn) in assets under management. Targeting high-growth economies, it has successfully deployed capital in over 40 investments in 11 countries, structuring more than 20 exits and giving around US$3bn (Dh11bn) back to investors, while the US$7bn (Dh26bn) it has raised since inception is almost US$1bn (Dh3.7bn) more than its nearest emerging markets competitor. The figures are impressive, although Naqvi is refreshingly straightforward about Abraaj’s modus operandi.

“For way too long PE has had this image of being the alchemist’s box,” he says. “Very, very smart people put their hand into the box, and they bring it out and base metal has been turned into gold. It’s not that, it’s actually the most practical industry you can imagine. It’s about doing the same thing over and over again, day after day. It’s about understanding the nuts and bolts of the fundamentals of business.

“From day one with Abraaj, we put aside five per cent of our top line, not our bottom line, into what we called at the time ‘Sustainable Causes in the Region’,” he continues. “Everybody thought I was nuts. But I follow the stakeholder approach, not the shareholder approach.”

Today, this principle has evolved into the Abraaj Strategic Stakeholder Engagement Track, or ASSET, a programme which runs alongside Abraaj’s investment activities and is resourced by the firm’s ‘5+5+5’ practice: Abraaj contributes five per cent of its top-line fee income revenue to the programme, while employees are required to contribute five days of their time a year and may also volunteer five per cent of their annual bonus.

“Personally I don’t spend five days, I land up spending 20 to 25 days,” Naqvi continues. “I am continuously pushing the message, building awareness, and bringing involved thinking into the way governments, NGOs and business communities work. So my five days are not spent building a house with Habitat for Humanity. My days are spent where I think my impact is maximised: they are spent building bridges.”

In that spirit, ASSET is also the umbrella under which Abraaj has launched a number of initiatives and partnerships, including Jordan-based community empowerment organisation Ruwwad, online platform Wamda, and a strategic alliance with US-based NGO Endeavor. The latter will include the founding of an Endeavor regional hub for the MENASA (Middle East, North Africa and South Asia) region, which will be hosted by Abraaj and headquartered in Dubai. From this base the NGO – which has so far created more than 100,000 jobs and generated US$3bn (Dh11bn) in annual revenues in Latin America alone – will expand services to Egypt, Jordan, Lebanon and Turkey.

“Endeavor’s role is to identify high growth, high impact entrepreneurs,” explains Naqvi. “They believe that this region has a greater proportion of those people undiscovered than any other region in the world.”

ASSET is supported by 19 key executives within Abraaj, each of which ensures that the teams under their authority are achieving what is expected of them by Naqvi and Frederic Sicre, a former Managing Director of the World Economic Forum, and head of ASSET. And this vigilance doesn’t just extend to the 40,000 staff employed at companies directly controlled by Abraaj: any firm which joins forces with the PE giant should be prepared to contract the ASSET “virus”.

“I force them, at the point of impact when my leverage is the most, when I’m about to invest in the company, to get them to commit to embracing sustainability and ASSET,” smiles Naqvi. “Then we infect them with the virus that runs throughout our company. I need to leave that other company with the thought process that even when I sell my investment in them, they will continue down the same route and not change.”

Naqvi has been hammering relentlessly down that route for more than 15 years, during his time at Abraaj and before that the PE firm Cupola Group, which he founded in 1994. It is a path, he argues, that must be taken in order for a company to operate effectively in the 21st-century marketplace – and it’s a message from which he will not waver.

“It’s critical for companies to obtain a social or moral licence, to do the best business they can,” he says. “You need a licence to operate which is not from the municipality or the licensing authority in government; you need a licence to operate from your social communities.

“In tomorrow’s world, people will walk into a supermarket, see five different brands of a single product, and pick the one that they know does work in their local communities,” he adds. “I think that’s critically important, and the more companies embrace that social licence to operate, the more they will enjoy success going forward.”