Colony Capital Agrees to Buy Some of Abraaj's Key Funds

(Bloomberg) -- Colony Capital Inc. agreed to buy some of Abraaj Group’s key funds and oversee others as the Dubai-based private-equity firm attempts a court-supervised restructuring amid allegations of misused funds.

The U.S. asset manager reached an initial agreement to acquire Abraaj’s Latin American, sub-Saharan African, North African and Turkish fund-management businesses, as well as its limited-partnership interests in the underlying funds, Abraaj said in an emailed statement. Staff in eight offices will be transferred as part of the pact.

Earlier this week, a court in the Cayman Islands appointed provisional liquidators for the holdings and investment management units of Abraaj, which was once one of the developing world’s most influential investors. The move comes less than five months after some of its investors, including the Bill & Melinda Gates Foundation, commissioned an audit to investigate the alleged mismanagement of money in Abraaj’s healthcare fund.

"It will be beneficial for all involved," said Richard Segal, a senior analyst at Manulife Asset Management Ltd. in London. “It doesn’t necessarily make the other parts easier to resolve, except that management has more time to work on them."

‘Global Solution’

Colony Capital also agreed to oversee other Abraaj funds on an interim basis. The deal has received in principle regulatory approval and is expected to be completed by July 1.

The funds acquired by Colony Capital include the Abraaj Africa Fund III, which has assets of $990 million, the Abraaj North Africa Fund II with assets of $375 million, the Abraaj Turkey Fund I with $526 million and the Abraaj Latin America Fund II, which has assets of $545 million, according to an Abraaj Group spokeswoman. She declined to comment on the value of the deal.

“We’re delighted to have crafted this comprehensive global solution for Abraaj and its stakeholders and sincerely hope that this can enable the process of rebuilding on all sides,” Colony Capital Executive Chairman Tom Barrack said in the statement.

The money manager also acquired the earlier generation of funds associated with these regions, the assets of which were not disclosed.

‘Easy Deal’

Colony Capital ended talks to buy a majority stake in Abraaj’s fund-management unit after its due diligence efforts raised concerns about the company, people familiar with the matter said less than a month ago. While Abraaj’s founder Arif Naqvi ceded control of the firm’s fund-management business in February, he is still the chief executive officer of Abraaj Holdings.

"It seems like the easy deal, the low hanging fruit of a deal, has been completed, and in similar form to the one which nearly succeeded before the bankruptcy filing," Manulife’s Segal said.

A review of Abraaj’s finances found that there was commingling of Abraaj’s own money in the health-care fund and its fourth private-equity fund, according to a summary of a report by Deloitte that was presented to creditors on June 4 and seen by Bloomberg News. Abraaj still owes $94.6 million to its so-called Private Equity Fund IV, but all the money has been accounted for and there’s no evidence of embezzlement or misappropriation, according to the report.

AlixPartners LLP is expected to be formally appointed as interim manager of the $1 billion healthcare fund and the fund’s limited partners will decide on a permanent arrangement, according to people familiar with the matter who asked not to be identified.

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