After a quarter century of focusing on business opportunities in the United States and Western Europe, the Gulf’s premier private equity bank, Investcorp, recently opened a new line of business and hopes to begin operations in earnest in a few months.
Emirates Business spoke to Investcorp President and CEO Nemir Amin Kirdar on the group’s new venture and other wide-ranging subjects such as its exposure to the sub-prime crisis and the relationship between sovereign funds and private equity.
Is it the right time after so many years to turn to the Gulf when the market is crowded with global and local players?
The Gulf Capital Growth fund is very timely. For the first time in 25 years of specialising in private equity, real estate, hedge funds and technology investment, we are opening a fifth line of business of focusing on opportunities in the Gulf.
The time is right. Gulf countries have accumulated huge amounts of wealth. Where is it going to go? The governments want to build truly diversified, sophisticated and complementary economies. There will be big investments and financial institutions will have plenty to do. Investcorp can bring international know-how to establish Gulf institutions. It is very timely and who better than Investcorp to bring international know-how to local business.
What is the corpus of the fund? Is raising money taking longer than anticipated and have you fallen short of target?
There has been no delay. The original target was to raise $500 million (Dh1.8 billion) by the end of this year, but we are way past that. So we decided to raise the target to $1bn (Dh3.6bn) and the new target date is end of March 2008.
When can we expect to see results?
We are in the first phase of raising funds, which will finish in the next three months. The next phase will be to build the know-how base. We have eight professionals and we will have the team completed by June and then we will be in a position to start to look at opportunities. In fact, people are already sending in proposals. Some may not fit, and some we will consider. By the end of 2008, we would be in a better position to explain.
What will be the investment strategy, which sectors would you looking at and what kind of returns do you forecast?
Our strategy is not sectoral, but more opportunistic. We will identify which areas are right, where we have contacts and connections and the know-how to establish the right companies.
As for returns, an indicator is that in all our investments in private equity, every deal in the last 25 years has given on average a 19 per cent annual return.
Our investor returns have averaged every year for the past 25 years at 20 per cent. The original capital of $50m (Dh183.5m) when we started in 1982 has grown 450 per cent. Our market capitalisation is more than $2bn (Dh7.3bn). We have given back dividends as well as capital appreciation.
Turning to your major market the US, and to one of the four major lines of your business, real estate – how have you been impacted by the on going crisis?
For us real estate has been very profitable and we are in a much different risk area. One of the things that differentiate Investcorp is our risk management. It has a big effect on our investment decision. When times are good, all have good returns, but when they are bad, our protection is already in place.
We are part of the global financial market and it has its impact on us. For the past six months to date, we have had a very successful half year. In January, we will announce our first half results. In 2006 our net income was $131m (Dh480m) and in 2007 some $302m (Dh1.1bn). So far we are on target. But who knows about the last six months?
Do you see a nexus between Private Equity and Sovereign Funds?
If you begin a major fund, it may be difficult to start to buy and sell immediately.
This is where you can use institutions like Investcorp as professional intermediaries. Sovereign Funds can use the expertise we have acquired the same as Pension Funds.
Our investments are not subjected to any obstacles where we operate. The reason is not luck. We are highly visible and professional and respected for the past 25 years. We have a specialised line of business; we understand the legal systems and channels of doing business. We have a knowledge base and know-how.
There are various estimates about Investcorp’s ownership structure. Can you set the record straight?
We have $4bn (Dh14.6bn) on our annual balance sheet, plus another $9bn (Dh33bn) of clients’ assets under management. We have the capacity to manage $20bn (Dh73.4bn). We have the know-how and 400 people. The management ownership is 17 per cent and we hope to grow it to 20 per cent in two to three years.
Your shares are listed in Bahrain and London Stock Exchange. Is there any plan to list them at Dubai International Financial Exchange or elsewhere in the Gulf or abroad?
We are doing great now. We have no plans for another listing in the Gulf.
You have offices in Bahrain, London and New York. Is there any plan to open another office in the Gulf such as in Dubai International Financial Centre (DIFC) or Qatar Financial Centre?
If business requires it, we will consider everything. Right now our three offices are capable of doing our business very well.
President & CEO of Investcorp
Nemir Amin Kirdar comes from a prominent family in Iraq. He was studying in Istanbul when Saddam Hussain took power in Baghdad.
Nemir left for the US, where he worked to complete his education.
In the early seventies, he was hired by Chase Manhattan Bank to operate in the Gulf. He soon realised that the Gulf had a surplus that needed to be gainfully invested.
In 1982, Investcorp was born with a capital of $50m (Dh183m).
Presenting the Global Leadership Award in June 2006, the Columbia University said Nemir’s achievements are the stuff of legends. It described him as “Friend and advisor to Kings, Presidents and Prime Ministers, the creator of an awesome financial empire and strong supporter of institutions of higher learning”.
Nemir continues to be a powerhouse, making decision involving billions as well as promoting the cause of learning and higher education.