The problem with investing in emerging markets
Private equity group Abraaj has been cleared of misappropriating funds from its US$1bn Abraaj Growth Markets Health Fund by the outside accountants hired by its investors following reports that money had been mishandled. The saga highlights the difficulties and delays in deploying capital in emerging markets.
Last week, The Wall Street Journal reported that investors including the Bill & Melinda Gates Foundation, the IFC and CDC Group (UK’s Commonwealth Development Corporation) had hired KPMG to scrutinise the fund’s accounts.
An Abraaj spokesperson said at the time: “Given the lack of mature healthcare assets in growth markets and the need to develop greenfield as well as brownfield projects, capital deployment is less predictable than that of a standard private equity fund.
“Some capital was not used as quickly as anticipated due to unforeseen political and regulatory developments in several of the Fund’s operating markets.”
KPMG has now cleared the fund of any wrongdoing, with a more recent Abraaj statement reiterating that “unused capital was returned to investors.”
Our Analysis: It’s not surprising that delays in building healthcare facilities in Nigeria and Pakistan have been reported as part of the reason for delays in deploying capital. These were highlighted as particularly risky areas at our conference last year.
Economic downturns, subcontractors going bust, currency fluctuations, opaque regulatory frameworks, obstinate local authorities; the list of potential hurdles in nascent markets investing goes on.
A contact in Nigeria who has followed Abraaj’s new-build developments in Lagos closely tells us that the recession there has played a part too, for example. A weakened naira has increased import costs compounding issues and he says the design of the development with local diagnostics outfit Me Cure has changed a few times recently.
Prior to this news, an operator in Lagos alluded to delays the group was facing: “Abraaj has had US$100m to spend on healthcare apparently dedicated to Nigeria now for how long? And they haven’t really done anything in a few years now. They are working on a facility but considering how long they have had the money and the control, it’s taking them quite a bit of time to get it done.”
In Pakistan, Abraaj has been partnering with Islamabad Diagnostic Centre to open diagnostic centres across the country and told us it would move into hospitals too. It would not be surprising if it was facing problems there too; other private equity groups have stayed well away from the country’s healthcare sector.
We would welcome your thoughts on this story. Email your views to Cameron Murray or call 0207 183 3779.
