Investors were warned about Abraaj fraud in 2017, report claims

US asset manager Hamilton Lane agreed to commit more than $100m into failed private equity group's healthcare fund but ultimately, the deal did not close

Arif Naqvi, chief executive officer of Abraaj Capital Ltd., pauses during a Bloomberg Television interview in London, U.K., on Monday, Jan. 18, 2016. Brent crude fell to a 12-year low in London, briefly dipping below $28 a barrel, after the lifting of international sanctions on Iran paved the way for increased supply amid a global glut. Photographer: Luke MacGregor/Bloomberg *** Local Caption *** Arif Naqvi
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Five months before the events that led to the collapse of Abraaj Group, the biggest in private equity history, one of the firm’s investors was warned about putting more money in, according to an email chain reviewed by Bloomberg.

At least two senior executives of Hamilton Lane received an anonymous email in September 2017 advising them not to invest in a planned Abraaj global emerging-markets fund, the emails show. The warning was also sent to several other institutions that were potential investors in the fund, said a person with knowledge of the matter, who asked not to be identified because it is private.

The email, with the subject line “Abraaj Fund 6 Warning,” alleged that the buyout firm was overvaluing holdings to falsely suggest they were profitable and to boost its track record. In addition, the email claimed, most of the deals in the pipeline for the planned fund-raising were “dead” and Abraaj knew it.

“The governance is not what it appears but employees are afraid to speak or partners entrenched so don’t speak,” the email read. “There is no smoke without fire. Be the hero in your firm and uncover the truth by asking simple questions.”

Despite the warning, the Pennsylvania-based investor agreed to commit more than $100 million to the fund, people with knowledge of the matter said. The fund never closed, so Hamilton Lane didn’t lose any money on it.

One of the Hamilton Lane executives forwarded the email to Abraaj founder Arif Naqvi and a former employee, Mark Bourgeois, the chain shows. A representative for Mr Naqvi’s lawyer wasn’t immediately available for comment. A call to Mr Bourgeois’s new employer, Courage Capital Management, wasn’t immediately returned.

Hamilton Lane raised the matter with senior Abraaj staff right away and asked the company to provide documents to substantiate claims it made in raising money for the new fund, one of the people said.

It was the first time Hamilton Lane had committed money to a primary fund-raising by Dubai-based Abraaj, one of the people said. Its only previous exposure to Abraaj was through a secondary-market investment it made in a series of Abraaj funds in 2015, the person said. In its earnings presentation in November, the company said its Abraaj-related financial exposure was $382 million, accounting for less than 1 per cent of its overall assets under management.

After allegations emerged in early 2018 that money in Abraaj’s health care fund had been misused, Abraaj decided against raising the new fund after all and returned about $3 billion of capital to the investors.

Abraaj, which managed almost $14bn, had become one of the world’s most influential emerging-market investors, with stakes in health care, clean energy, lending and real estate across Africa, Asia, Latin America and Turkey. It was forced into liquidation in June after a group of investors, including the Bill & Melinda Gates Foundation, commissioned an audit to investigate the alleged mismanagement of money in the health care fund.

That had a ripple effect on private equity activity in emerging markets, and local buyout activity in the Middle East came to a near standstill. The collapse led to a probe by US authorities and to the arrest of Mr Naqvi and Mustafa Abdel-Wadood, a former managing partner, as well as a third executive.

Mr Naqvi, who founded the firm in 2002, is charged with inflating the value of the firm’s holdings and stealing hundreds of millions of dollars. He denies the accusations. He was released on bail of 15 million pounds ($20m) on Thursday in London.

Mr Abdel-Wadood was charged in the US with fraud and conspiracy and has pleaded not guilty. He was released earlier to home confinement on a $10m bond.