Investcorp bullish on US economy and says China can handle Evergrande crisis

The company could consider real estate deals in China as the crisis 'may have a calming effect on prices' in the world's second-largest economy, executive chairman says

Investcorp executive chairman Mohammed Alardhi. The company continues to look for private equity and real estate deals in the US. Phil Weymouth for The National
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Investcorp, the alternative asset manager that counts Mubadala Investment Company as its biggest shareholder, is upbeat on the growth prospects of the US economy, despite global headwinds, and remains confident that China can resolve the $300 billion debt-crisis of its second-largest property developer Evergrande, its executive chairman said on Sunday.

“We are very bullish on the US economy,” Mohammed Alardhi told Bloomberg. “We all know what’s happening in the world, [and that] may be dampening growth, but we see good growth coming [in the US].”

The US Federal Reserve is set to start slowing its Covid-19 support to the US economy and could begin scaling back its asset purchase programme this year. However, the tapering by the Fed will be “gradual” and will give the US central bank the opportunity to discuss its “average inflation policy going forward”, which will help in minimising volatility, Mr Alardhi said.

“I think the Fed has been very careful about this right from the beginning,” he added.

The Bahrain-based company is looking for more investments in the US, which – along with Europe – currently make up about 80 per cent of Investcorp’s global investment portfolio.

It is on the lookout for private equity deals through its North America PE Fund, which has grown to over $1bn. The company is also looking to acquire more real estate assets in the world’s biggest economy.

“We are in the top five foreign investors in the US real estate [sector]. We have been doing that for a very long time [and] our investors have been very happy with us,” Mr Alardhi said.

Investcorp is focusing on investing in multifamily and industrial real estate assets in the US, which, Mr Alardhi said, are resilient to crises and different economic cycles.

“America continues to be our biggest market,” he said. “Real estate business in Europe and the US has done tremendously well.”

The company is open to exploring investment opportunities in China’s real estate sector in the wake of the Evergrande crisis that has shaken markets across Asia in recent weeks.

“We are there for the opportunities, we are there for the long term,” he said of Investcorp's investment plans in China. The company has no direct exposure to China's real estate sector.

“Obviously, the sectors that we have focused on at the moment are what we see as the best sectors: technology, healthcare and food businesses.”

Mr Alardhi said he does not believe the $300bn debt-crisis of China's second largest property developer Evergrande is equivalent to the bankruptcy of Lehman Brothers during the 2008-2009 global financial crisis.

The debt pile of Evergrande, the world’s most debt-ridden property developer, has drawn comparisons with the collapse of Lehman, with some industry analysts saying it could result in a contagion to markets outside China and possible set of a credit crunch.

“I think the Chinese government has a lot of tools to deal with this, if they decided to do that,” Mr Alardhi said.

“I think this is something temporary, contained within China and Asia. Actually, it may have a calming effect on prices of real estate that are really ballooning in parts of China.”

China's $15 trillion economy, which accounts for about 18 per cent of global output, can contain the crisis, Barbara Ann Bernard, founder and chief investment officer of asset management firm Wincrest Capital, said on Bloomberg TV. The risk from the Evergrande crisis will be a drag on Chinese growth, given the debt of the company is held by Chinese investors and banks, Ms Bernard said.

Investcorp, which plans a rapid expansion in its GCC and Asian portfolio of investment, sees its assets under management more than doubling to $100bn in the medium term from about $40bn.

“We believe, in about seven years, we can get there,” Mr Alardhi said. “Acquisitions, organic growth, joint ventures are things we have done and we will continue to do.”

The asset manager has made 11 private equity investments in Asia and sees enormous potential for growth in the region, which Mr Alardhi said will “be very important in the future of Investcorp”.

“I mean, the growth that is happening there, the scale that is happening there is something that you can’t ignore,” he said.

Investcorp will continue to focus on the consumer, technology and food sector in China, while in India it plans to explore opportunities in financial services and healthcare businesses.

“We see a lot of growth there” and “a lot of appetite for from investors” to get involved in India, China and some of the other South-East Asian markets, he added.

Investcorp operates across six business lines: private equity, real estate, credit, hedge funds, strategic capital and infrastructure.

“All these six are going to be the pillars of this growth,” Mr Alardhi said.

Established more than four decades ago, Investcorp has grown to become one of the leading alternative asset management companies in the region. It has been on an acquisition spree during the pandemic to capitalise on lower asset valuations.

Investcorp swung to a full-year profit, despite Covid-19 headwinds. Its net profit for the financial year ended June 30 rose to $124 million, from a loss of $165m a year earlier, it said in August.

Updated: September 26, 2021, 11:59 AM