Mid-East, South Asia distressed fund raises $120m

HBG Holdings, a Dubai-based private equity firm, has held a second close on $120 million (€82 million) for its fund targeting distressed investments in the Middle East and South Asia.

The fund held a first close on $45 million in June. It was launched in February with an initial target of $100 million, later increased to $180 million.

“We now expect a final close north of $200 million,” Zulfi Hydari, HBG managing director, told PEO. “We have experienced very strong demand for this product.”

The fund’s limited partners consist of high net worth individuals and family offices in the region, as well as financial institutions.

Zulfi Hydari

The vehicle will be nearly four times the size of the previous circa $50 million of capital the firm had under management through individual targeted acquisition vehicles since 2004. HBG had put off raising a traditionally structured private equity fund because it was effectively waiting for the emerging market to catch up with its investment strategy.

“When we went around looking to raise a fund back in 2003-2004 and we’d say it was distressed turnarounds, people would say ‘What is that?’ They just didn’t even really understand it, they weren’t comfortable,” Hydari recalls.

“So we went down the route of setting up special purpose vehicles for every particular acquisition that we looked at,” he said. “We had to educate [LPs] in terms of how we would structure it and why it would make money.”

But much has changed in the past three years, with private equity activity ramping up to incredible levels in the Middle East: New firms are sprouting up, fundraising is feverish and record-breaking leveraged deals are now regularly occurring.

“It was only back about a year and a bit ago where we had decided we’d achieved enough success and we were getting calls from investors and our own LPs were interested in going to the next level,” Hydari said.

HGB believes its fund will be set apart from others because of its distressed, restructuring and special situations focus.

“At a time when most players in the Middle East are focussed on the big-ticket buyouts, we are really looking for value [in] companies that haven’t really been performing very well,” Hydari said.

Expected to close in the next month or so, the fund’s capital will be deployed over the next 18 to 24 months, the firm said. It is targeting an annual internal rate of return of at least 20 percent.

HBG said it will also be looking to raise additional sector-specific funds in coming months. Hydari previously told PEO it is also considering raising an Islamic fund due to growing regional demand for Sharia-compliant products.

“We had some interested investors in this fund who did not come on board because we could not promise we would invest Islamically,” he said.