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Private Equity

Abraaj liquidators trying to sell off businesses

Colony Capital’s Justin Chang

While many of Abraaj Investment Management's limited partners wait to see how their investments in Abraaj funds will ultimately fare, the liquidators of Abraaj's holding company and its private equity manager subsidiary are busy finding buyers for Abraaj's funds.

Abraaj was forced into provisional liquidation by the Grand Court of the Cayman Islands on June 18 following a forensic audit by some investors in Abraaj's funds. PricewaterhouseCoopers LLP is overseeing the liquidation of Abraaj Group, while Deloitte LLP is in charge of liquidating Abraaj Investment Management Ltd.

In April, alternative investment manager Colony Capital Inc. finalized the first transaction, acquiring Abraaj's $700 million Latin America business. Terms of the deal are not being disclosed.

"The Latin America market is very attractive," said Justin Chang, Los Angeles-based managing director and global head of private equity for Colony Capital.

Latin America has a growing middle class and the countries are increasingly pro-business and pro-foreign investment, he said.

"Our conclusion was that the Latin America business (of Abraaj) was our preferred investment option, with one of the best teams in Latin America," Mr. Chang said.

The acquisition kick-starts a new Latin America business at the firm — Colony Latam Partners.

"There's a real opportunity to expand and build up Colony Latam Partners," Mr. Chang said. "We are excited to grow the business. Over the next one or two years, we are likely to expand into other asset classes, including credit, real estate and energy."

Other managers, including TPG Capital and Actis Capital, are currently in talks to buy other Abraaj fund businesses.

"Consents are being collected with the aim to transfer 75% of our clients' exposed assets to Actis, a well-regarded general partner with a great deal of experience in the emerging markets," Hamilton Lane CEO Mario Giannini said during the firm's earnings call on Nov. 6.

"The remaining 25% of the assets are in two underlying funds; one of which is in process of selecting a replacement fund manager. And the second is a fund with only two remaining assets, both of which are in process of being monetized," he added during the call.

He said that Hamilton Lane executives and its investors didn't know about the issues at Abraaj until February 2018.

Coincidentally, until 2015, Hamilton Lane was partially owned by Cascade Investment LLC, which invests the personal wealth of Microsoft Corp. co-founder Bill Gates as well as the assets of the $50.7 billion Bill & Melinda Gates Foundation, Seattle. The Gates foundation is not a Hamilton Lane client.

The Gates foundation is an investor in Abraaj Growth Markets Health Fund along with CDC Group PLC, health-care operators Philips Healthcare and Medtronic PLC, as well as the African Development Bank and France's Proparco, according to a statement on the CDC Group's website. In February 2018, some Abraaj investors, including the Gates foundation, commissioned a forensic audit to investigate what they suspected was alleged mismanagement in Abraaj's health-care fund. Abraaj, which managed about $14 billion, was placed into liquidation in June.

Since liquidation, the process of finding new managers has been long and arduous, said sources familiar with the situation.

TPG announced it was in talks to acquire Abraaj's $1 billion health-care fund in September, with the deal expected to close in the fourth quarter of 2018. However, the deal is taking longer than expected, sources said. "The parties are fully active and are still engaged" in the transaction, according to sources close to the deal.

Some of the older funds will take a while to be liquidated, in part, due to their investment complexity, sources said.

Some industry executives with knowledge of the situation said that it did not take long to see there were hundreds of millions of dollars missing from the holding company.