Never a dull moment in this detailed chronicle by Brian Brivati of the collapse of the leading impact investment group Abraaj, and worrying lessons to be learnt.
Brian Brivati, the author of ‘Icarus – the life and death of the Abraaj Group’ describes himself as a “crazy human rights professor” who is “a lucky researcher”. I think he is being modest.
As an experienced archival historian, he has provided an analysis that is both forensic and gripping. His book often reads like a James Bond novel.
When the author nonchalantly tells you he persuaded an ex-employee of Abraaj to hand over the entire file of internal ‘memos to all staff’, you realise he makes his own luck.
Abraaj means towering in Arabic, and at one point the group towered over the impact investing industry. The Dubai-based company led by the charismatic Arif Naqvi was a private equity firm that at its peak had some $14bn under management and managed more than two hundred investments through twenty offices.
Brivati writes that Abraaj had “been born in the nexus of the Middle East and South East Asia.” Naqvi himself, having grown up in Pakistan, clearly understood the investment opportunities, if not – as we shall see – the geopolitical implications.
Protecting impact investing’s reputation
Brivati’s motive in writing this book is clear. He worries that the fall of Abraaj was a “detrimental blow to the reputation of impact investing,” and states that: “We need a balanced account on the record” and a “re-appraisal of the continuing possibility of impact investing in emerging markets.” Impact investing is an idea “whose reputation is too important to leave unprotected.”
Brivati is a firm believer that “Abraaj was a pioneer of impact investing in emerging markets and (that it)…had a multiplier effect in often poor communities.”
He lists investments across Africa and South Asia in “twenty-nine hospitals, sixteen clinics, more than seventy diagnostic centres…” and sums up it was “one of the largest and most innovative strategies deployed in emerging markets’ history.”
No money missing
So what went wrong? When Naqvi was arrested at Heathrow in 2017 at the request of the US Department of Justice (DOJ) they “threw the book at him.” He was accused of “securities fraud, wire fraud, racketeering conspiracy, money laundering, theft of public funds and theft of employee pension plans.”
Yet, as Brivati with his eagle eye observes one ‘loose thread’ caught his eye “despite the charges…there was no actual money missing or unaccounted for at the level of audit from any of the funds under management.” Indeed “at the moment the Abraaj Group went into liquidation it had assets that were greater than the amounts claimed by the creditors.”
In addition, investment returns were good at Abraaj. The five funds apparently had an average realised internal rate of return of 50% across more than twenty exits. “These were very odd gangsters. Not only did they not steal anything, their ‘victims’ made a profit,” writes Brivati.
In the author’s mind, how private equity firms actually work is crucial to whether or not Naqvi was guilty. As Brivati sees it “the DOJ indictment rests on the differences in the interpretation of the limited partner agreements” and he even goes as far as arguing “there seems a strong case for restructuring the (whole) system.”
According to this book, Abraaj’s real problem was that it got caught in the political crossfire between China and the United States. China had been busy weaving its web of influence through its so-called Belt and Road Initiative of investments in emerging markets.
Pakistan, and the port of Karachi in particular, was seen as a crucial part of that, and Abraaj owned Karachi Electric, the main electricity supplier to the city. Much to Washington’s ire, Naqvi proposed selling the company to Shanghai Electric.
Brivati says he doesn’t “know whether there was a CIA case officer…who was given the job of setting fire to the towers of Abraaj” but in his view it was a “take-down operation.”
This is worrying enough, but then the final dimension to this fascinating story is the role of the Wall Street Journal. Brivati asserts “the newspaper appears to have been used by forces that were intent on destroying Abraaj,” and became “a vital weapon in the armoury of the economic hitmen targeting the company.”
Anonymous leaks provided stories at particularly damaging moments, “in short, the newspaper reports caused panic amongst the investor base.”
This is all fascinating stuff. One comes away from this book fearing we are going to see a lot more of this in the years to come as the superpower rivalry continues to play out in emerging markets.