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Abraaj nears $4bn fund close

Existing LPs have committed $3bn toward the latest buyout fund from the MENASA-focused firm, which has just purchased a controlling stake in the Karachi Electric Supply Company for an estimated price of $400m.

Abraaj Capital is nearing a $4 billion final close for its third buyout fund, double the size of the $2 billion infrastructure and growth capital fund it raised last year and eight times larger than its second buyout fund, which raised $500 million in 2005.
 
The firm has held a first close on commitments for Fund III totaling $3 billion entirely from existing limited partners, managing director Mustafa Abdel-Wadood said at a conference in Dubai.
 
Dubai-headquartered Abraaj raised $116 million for its first fund in 2003, and has since rapidly expanded its multi-strategy franchise across the region. 
 
In August the firm appointed Farrukh Abbas to lead its efforts in Pakistan and today said it had purchased a controlling stake in Karachi’s only electricity supplier, the Karachi Electric Supply Company. Financial details were not disclosed, though local media reports have estimated the deal worth $400 million.
 
Abraaj declined to comment.
 
News of its fundraising success is significant at a time when many private equity firms are struggling to raise the same level of large commitments they have received in the past from institutional investors. Many such investors are now faced with shrinking assets and slowing realisations, and as a result, over-weighted private equity programmes. 
 

We see people, particularly in the Middle East, who have decided to defer [commitments] until the first or second quarter of next year.

Edward Frazer

The California State Teachers’ Retirement System, for example, has acknowledged it is battling this so-called denominator effect. While CalSTRS continues to commit to its existing managers, in some cases it is writing smaller tickets. The public pension reportedly planned to invest $250 million in The Blackstone Group’s latest buyout fund – a significant decrease from the $1.7 billion it previously committed to Blackstone’s fifth global fund.
 
Making smaller, or in some cases zero, commitments as a result of current global financial turmoil is a trend also among Middle Eastern limited partners, says Edward Frazer, founder and chief executive of Trinity Group, a London-based placement agent that specialises in raising capital in the Middle East and has done so for firms including The Carlyle Group, Cinven, Kohlberg Kravis Roberts and Lexington Partners.
 
“They’ve just decided to wait and take a look at how things will play out. We see people, particularly in the Middle East, who have decided to defer [commitments] until the first or second quarter of next year,” he recently told sister magazine Private Equity International.
 
“We get so many calls from so many people thinking that going to the Middle East is Nirvana because of all their liquidity,” he says. But aside from the glut of product that has come on the market – Frazer estimates more than 600 emerging markets funds alone are being pitched to Middle Eastern investors – factors like the drop in oil prices and the disastrous financial sector bets some sovereign funds took are impacting budgets and investment committee decisions.