Investcorp expects to hit last fiscal year's $5.4bn funding level despite geopolitical volatility

Investor appetite is returning across asset classes, though not at peak levels yet, says vice chairman

Rishi Kapoor, chief investment officer of Investcorp, says despite heightened uncertainty, growth in Gulf economies, as well as investment inflows and outflows have been fairly robust. AFP

Investcorp, the Bahrain-based alternative asset manager, raised $5.4 billion in funding from global investors during its last fiscal year and expects to reach a similar level this year despite a sharp increase in geopolitical volatility in the Middle East, its vice-chairman has said.

The company, backed by Abu Dhabi's Mubadala Investment Company, also deployed $4.4 billion in capital during the 12 months ending June 30 across asset classes, Rishi Kapoor told The National in Riyadh. He expects investor appetite to remain strong, with Investcorp hitting a “similar level” of investments during the current financial year.

“The fund-raising momentum has actually improved no doubt, investor sentiment is improving, and you can sense it, as the last [fiscal] year was better than the previous year,” Mr Kapoor said. “We are seeing the flywheel beginning to turn … investor appetite is coming back to normalised levels across asset classes, [though] not at the peak levels yet.”

For the current fiscal year, “signs are encouraging” and the company is “not accumulating a pile of dry powder as whatever is being raised is getting deployed … and we are keeping pace”, he said.

Investment sentiment in the Gulf region, in particular, has “held up remarkably well despite the overhang of geopolitical uncertainty and the conflict”, he said. “It’s almost been an oasis, the GCC in particular, in the middle of all of that.”

Despite the heightened uncertainty, growth in Gulf economies, as well as investment inflows and outflows have been “fairly robust”.

“[It is] surprising relative to what might have been the case in similar situations earlier,” he said. “I’ve been here 30 years and I have seen geopolitical conflicts in the past having an impact, a real dent, but this time around, it doesn’t seem to be the case.”

Though Mr Kapoor takes “some degree of confidence” from the current investment trends in the Middle East, he said the company cannot be “too comfortable” as the conflict needs a resolution in a “much more sustainable way”.

The Israel-Gaza war, which entered its second year on October 7, has spread across the borders into Lebanon with Israeli strikes on Iran threatening to spread the conflict even further.

While the Palestinian and Lebanese economies have been devastated, the broader Middle East and North Africa region has still managed to maintain growth, albeit at a much slower pace.

Last month, the International Monetary Fund cut its Mena economic growth forecast by 0.6 per cent to 2.1 per cent for this year. In terms of performance, this year “looks better than last”, however, “uncertainty is extremely high”, Jihad Azour IMF’s regional director, told The National last week.

The Washington-based fund expects the Gulf region to expand more than 1 per cent this year and 4 per cent next year, supported by non-oil sector growth.

Gulf countries, with a “right mix of policies”, and diversification of their economies were able to weather the Covid crisis, the war in Ukraine and the wars in the region to maintain “a good level of growth, higher than the average global growth”, Mr Azour said.

Fund-raising push

Investcorp, which is known for its shareholding in Tiffany & Co and Gucci during its early years of investing, has grown to become a global investment powerhouse. The company is among several international asset managers seeking funding from local and foreign investors for their Middle East-focused investment funds.

In April, BlackRock, one of the world’s largest asset managers, signed an initial agreement with Saudi Arabia’s $930-billion sovereign wealth investor, Public Investment Fund, to anchor a Riyadh-based multi-asset platform with as much as $5 billion in investment. Last week, the PIF also agreed to become an anchor investor in Brookfield Asset Management’s newly launched $2 billion Middle East-focused private equity fund.

In April, Investcorp teamed up with China’s sovereign wealth fund to launch a $1 billion fund that will invest in high-growth companies in Saudi Arabia, other Gulf countries and China as part of its push to boost its global portfolio of investments.

The Investcorp Golden Horizon platform, which will be anchored by institutional and private investors from the Gulf, as well as the China Investment Corporation, will target companies with high growth potential in sectors such as consumer, health care, logistics and business services, Investcorp said at the time.

The Investcorp Saudi Pre-IPO Growth Fund, which is part of the $1 billion platform, has already announced three investments in the Gulf, which are at various stages of progress. Some might be ready for an IPO in the next couple of years, Mr Kapoor said.

In December, Investcorp launched a $750 million climate-focused investment platform to invest in companies focused on developing innovative products and technology to reduce emissions globally.

The fund is “still in its infancy … what we have been trying to do in the intermediate is to line up more anchor partners, especially from the region, because the focus of that fund is to leverage the GCC’s unique location and position it as a launch pad for the global south”, Mr Kapoor said.

The investment vehicle is initially aiming for $500 million in funding to build a portfolio of at least 10 investments with an average ticket size of about $50 million each, he said.

Deals spree

Established in 1982, Investcorp invests across different asset classes through its six business lines: private equity, real estate, absolute return investments, infrastructure, credit management and strategic capital.

The company, which maintained a brisk pace of acquisition through the Covid-19 pandemic to capitalise on lower asset valuations, has continued its aggressive portfolio expansion since.

Its assets under management have hit $53 billion and it aims to more than double that by its 50th anniversary, focusing primarily on mid-market companies across consumption-linked sectors in the Americas, Europe, and the broader Asia region, including the Middle East.

“Investcorp is in the right markets with the right asset classes,” Mr Kapoor said. “Our natural evolution from here would be that it'll take us somewhere around seven, eight years to double AUMs … if you think about the growth rate of the industry … it actually ties in quite neatly.”

In terms of geographies, the Americas currently account for about 65 per cent of the company’s AUMs, while 30 per cent of its investments are spread across Europe. The Asia region, including the Middle East, accounts for the rest.

Both India and China are expected to drive growth in the next five years “from a low base” and the company is bullish about continuing investments in both markets, though it is also exploring some of the other high-growth large economies in the region, Mr Kapoor said.

“The US will continue to be a dominant market for Investcorp as two thirds of our business footprint is likely to continue to be in the US,” he said.

In terms of business segments, Investcorp expects its credit business with assets of about $22 to $23 billion and its more than $1 billion insurance business to drive growth going forward.

“Those two have the ability … the credit business can double to $45 billion and the insurance business can be $10 billion, so those are the primary engines of future growth,” Mr Kapoor said.

“Real estate and private equity will grow, but in the more stabilised sense while infrastructure, which is a recent addition, also has growth potential.”

Last November, Investcorp listed its subsidiary Investcorp Capital, which offers capital financing services in the alternative investments space, on the Abu Dhabi Securities Exchange after it raised Dh1.66 billion ($451 million) by selling a 32.85 per cent stake to the public.

Mr Kapoor said there are no plans to list more units of the company and the focus remains on growing its asset base under the new management structure.

Earlier this year, the company announced changes to its leadership, which Mr Kapoor said leaves the company “better off, better prepared for the next leg”. The reshuffle handed more control to chairman Mohammed Alardhi, as Hazem Ben-Gacem, co-chief executive at the firm, left after three decades and Mr Kapoor, the other co-chief executive, assumed new responsibilities of vice chairman and chief investment officer.