Following the acquisition of Aureos Capital, the Middle East’s largest private equity firm is poised to stretch further into the developing world, particularly in the sometimes-underrated African markets, according to Abraaj Chief Executive Officer Arif Naqvi.
The purchase of the London-based Aureos (for an undisclosed sum) gives Abraaj access to a broad portfolio of emerging market assets, not least $627 million in African investments, Naqvi told CNBC’s “Access: Middle East”.
Acknowledging the “addressable” risks associated with governance in many African countries, Naqvi nonetheless sees a plethora of potential rewards.
“The important thing is that only a third of the African story is about the mining of resources and commodities. We have telecoms, we have retail, we have logistics, we have infrastructures…so the space in Africa is a very exciting investment destination,” he explained.
Since its inception in 2002, Abraaj Capital has amassed assets of $7.5 billion under management. The firm has thus far shunned developed markets, focusing instead on what Naqvi coined “global growth markets” such as Indonesia, Turkey, Egypt and India.
“Remember when risks came to the global market in 2008, it came from Wall Street”.
The International Monetary Fund (IMF) estimates that emerging markets will account for more than two thirds of global output by 2030. Investment veterans will often throw China in that basket, but Naqvi is not interested.
“It's not only a busy market, but the market is headed towards a consolidation, firstly. And secondly, I believe that unless you're a local in the environment, you must not operate in that environment”.
Yet China’s rise has buoyed other economies in the region, presenting investment opportunities for Abraaj outside the world’s second largest economy.
“If you look at Brazil, as an investment destination, we invest in Latin America, in Mexico, in Columbia, in Peru, in Chile but not in Brazil yet. Because we want to run out that story of the surrounding environment before we turn to the market itself,” said Naqvi.
While Abraaj is focused solely in developing markets, its investments aim to reap the benefits of an emerging middle class in many of the world’s poorer countries.
“The force of demographics, the youth of the population, the energy of productivity that live inside these markets is what excites us,” he pointed out.
And when it comes to the Middle East, it is Saudi Arabia that continues to be key driver of economic activity. While Abraaj Capital is keen to enlarge its footprint in the MENA’s largest economy, Naqvi admitted the leading oil exporter is a politically-risky investment destination.
“The real issues in Saudi Arabia today are about the politics, not about the economy. Saudi Arabia needs to find its place, globally and certainly in the context of the Islamic world”.
Notwithstanding the allure Naqvi finds in global growth markets, the economic uncertainties gripping the U.S., China and the euro zone, with its rumbling debt crisis are holding back overall credit and transactional capacity levels.
“That has been taken up by banks from other locations. It’s not all doom and gloom,” he maintained. “But as they say, the black swan moment comes anytime”.
Tune in to this week’s “Access: Middle East” to find out where Naqvi stands on the possibility of an IPO, the Arab Spring, and the “art” of private equity.