Abraaj continues global fundraise amid claims of capital misuse

The emerging markets-focused firm has no plans to pause fundraising on its $6bn private equity fund as it awaits an auditor's report on its 2015-vintage health fund.

Abraaj will continue on fundraising for its $6 billion global private equity fund amid allegations it misused capital from its its 2015-vintage health fund, sister publication Private Equity International has learned.

The emerging markets-focused investment firm has raised about $3 billion for Abraaj Private Equity Fund VI and has no plans to pause its fundraising process, according to a source familiar with the matter.

Abraaj issued a statement on Sunday saying media reports it had misappropriated money from its $1 billion 2015-vintage Abraaj Growth Markets Health Fund were “inaccurate and misleading” and that it had appointed KPMG to audit the vehicle.

PEI understands that Abraaj appointed KPMG in early January to review accounts associated with the health fund after concerns were raised by some LPs in the fund. It is unclear how long the review will take.

“All capital that was drawn from AGHF investors was for approved Fund investments,” Abraaj noted in the statement. “Some capital was not used as quickly as anticipated due to unforeseen political and regulatory developments in several of the Fund’s operating markets. These delays were regularly communicated to investors through quarterly General Partner Reports and other investor communications.”

The Wall Street Journal on Friday reported that four LPs in the health fund – The Bill & Melinda Gates Foundation, the World Bank’s International Finance Corporation and government-backed development finance institutions CDC Group and Proparco – had hired an auditing firm to help trace capital that was to be invested in medical projects in India, Pakistan, Kenya and Nigeria.

Abraaj said in its statement it returned the unused capital from the health fund to all investors at the end of December.

It is unclear whether Abraaj uses a subscription credit line facility on its health fund, which would allow it to invest in deals without having to draw down capital from LPs.

A spokeswoman for the firm declined to comment past the statement.

Market sources PEI spoke to said Abraaj must act quickly to address the claims and should consider putting fundraising plans for Fund VI on hold until KPMG has completed its review.

“It’s going to be hard for [LPs] to go to their investment committees while this is out there,” said an advisory firm source. “It’s going to put a cloud over their fundraising. It’s a different fund but it’s still under the same umbrella. These are pretty serious allegations.”

The source it was highly unusual for LPs to hire auditors to examine a fund.

“Investors are concerned with reputational risk…Abraaj needs to look into this very quickly,” the source added.

LPs who have committed to Fund VI so far include Washington State Investment Board with $250 million, Teacher Retirement System of Texas with $100 million and Teachers’ Retirement System of Louisiana with $50 million, according to PEI data.

The Bill & Melinda Gates Foundation, CDC and Proparco declined to comment, while the IFC and KPMG did not return a request for comment by press time.

One LP who is not an investor in Abraaj’s funds agreed it will be difficult for investors to commit to a fund amid the reports.

“The dust needs to settle before people will feel comfortable,” the LP said.

The Abraaj statement in full:– Toby Mitchenall contributed to this report.