Mustafa Abdel-Wadood is partner and global head of private equity at The Abraaj Group, a private equity firm based in Dubai. Founded in 2002, it has $9.5 billion under management and focuses on emerging markets across Africa, Asia, Latin America, the Middle East and Turkey.
The full interview appears in the forthcoming April issue of AsianInvestor magazine.
AsianInvestor: Are limited partners more demanding these days?
Abdel-Wadood: The large investors all go through a very extensive diligence process. Institutions have different styles and approaches or different focus areas in respect of due diligence, but there is a bare minimum that’s common among all of them.
They look at your track record, processes, team and incentive structure to get comfort that they are not taking a risk on the GP [general partner] and that the GP is aligned with them. They may also spend time understanding the market, as they may be new to the markets we invest in. That’s probably something you see more with new investors.
What questions have you been asked more by LPs recently?
People want to understand more about risk – how we manage it, what our approach is, understanding political risk, currency risk. This is especially the case if investors are new to a particular region.
Questions on currency risk have been more common in the past year [in light of many emerging-market currencies weakening against the dollar and thereby affecting EM asset valuations].
LPs are also interested in understanding about the integration of environmental, social and governance [ESG] considerations into our investment process. This has been a core part of our philosophy and practice from the very beginning and we do see a greater number of LPs keen to learn more about this aspect of value creation.
What about recent concerns that have emerged around transparency of fees being charged?
Yes, they look at this. It’s not an issue of discussion as such, because at the end of the day, this is very transparent. It is what it is, and it is acceptable to the LPs, so there’s nothing unorthodox around what we do.
It’s not a topic of discussion per se; it’s a disclosure point. We make significant investments in our teams and infrastructure and that helps us invest better in our markets.
What’s your typical ticket size?
It varies from market to market, but typically we’re putting in between $20 million and $100 million, and usually at the higher end of that range.
I understand that some GPs and LPs have been forced to accept smaller chunks of big deals because there is more competition for the most popular assets?
We don’t do that. We lead our deals and take a very active ownership role. It’s very rare that we participate in deals with other PE investors, unless there is a very strong rationale to do so or know-how that’s being brought in by a partner.
The companies we invest in need a strong sense of ownership and direction because they have a strong value-creation plan to execute on. If you dilute the ownership and the decision-making, you end up in a very different place.
A more mature business that is at a steady stage of the development cycle can have that sort of diverse ownership – listed companies can have thousands or millions of shareholders.
But when you’re at a certain stage of growth, you need a single aligned shareholder – or perhaps two – to help you deliver on those plans. We would not sign up to a term sheet that’s been dictated by another sponsor and has four or five other sponsors involved.
We’ve only done a few joint deals such as [on Saudi Arabian fast-food chain] Kudu with [US-based PE firm] TPG [in early 2015], as they also had experience in the fast-food sector.
What about allowing LPs to co-invest?
We do have co-investment opportunities for our LPs, in which we take a clear, aligned approach on the value we seek to bring to our partner company. That is different from having four different sponsors with four different points of view.
It seems LPs in Asia are increasingly looking to do more co-investments or direct investments.
That’s true. A lot of LPs like to do direct deals, but the reality is that many more LPs state they want to do that than actually act on it. This could be due to a variety of factors.