Abraaj: The $14 Billion Fund That Fell Over a Hospital Fund

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The story

The short version

For a few years, Abraaj Group was the face of investing in the emerging world. Based in Dubai and founded by Karachi born Arif Naqvi, it managed about $14 billion across more than 40 funds, buying stakes in hospitals, power companies, lenders and shops from Pakistan to Africa to Latin America. Its founder was a regular at Davos and, a London court later heard, had the Pakistani president's phone number. The Gates Foundation trusted it with $100 million for a fund meant to build hospitals for poor families.

In 2018 it collapsed in a matter of months. This story follows the ledger: what the investors asked, what they found, and what the courts and regulators have said since.

A note before we start: Arif Naqvi denies any wrongdoing. The US charges against him have not been tried. Where we describe allegations, we say who made them.

How Abraaj grew

Naqvi started his first investment firm in Dubai in 1994. He founded Abraaj Capital in 2002, and in 2012 it merged with Aureos Capital to become The Abraaj Group. Its pitch was simple and powerful. Rich investors wanted growth in the fast growing parts of the world but did not know how to find good companies there. Abraaj said it did.

In Pakistan it was best known for taking control of Karachi's power company, then called KESC and now K-Electric, in 2008. The company's results improved under its ownership, but thousands of jobs were cut along the way.

The health fund

Abraaj raised about $1 billion for the Abraaj Growth Markets Health Fund. The plan was to build and run affordable hospitals in cities like Karachi and Lagos. Investors included the Gates Foundation with $100 million, and a US government agency that supports investment in developing countries.

This is where the ledger stopped adding up.

The question

In September 2017 an Abraaj employee emailed investors alleging years of wrongdoing. In January 2018 the Gates Foundation and three other investors hired forensic accountants to trace the health fund's money. In February 2018 the Gates Foundation and the World Bank asked a simple question: why was more than $200 million of the fund's cash sitting unused instead of building hospitals?

Abraaj said the delays came from unexpected political and regulatory hurdles. But the question would not go away, and it opened others. Prosecutors later alleged that money meant for investments had been used to cover the firm's own running costs, which had not been covered by its income for years.

The fall

Once lenders lost confidence, the end came fast. Abraaj defaulted on loans. Creditors including Kuwait's Public Institution for Social Security moved to force a court supervised restructuring. In June 2018, Abraaj's holding company and its main investment manager went into provisional liquidation in the Cayman Islands. Naqvi had already stepped down as chief executive in March.

What the authorities said

In April 2019 US prosecutors charged Naqvi and other former executives with fraud. They alleged that from 2014 to 2018 the firm inflated the value of its investments by more than $500 million, and that Naqvi took investor money for himself and people close to him. A former managing partner, Mustafa Abdel-Wadood, later pleaded guilty and agreed to cooperate with prosecutors.

Naqvi was arrested in London in April 2019. He was released on bail after a record £15 million security payment, under a curfew with an electronic tag.

In July 2019 the Dubai Financial Services Authority fined two Abraaj entities $315 million for deceiving investors and misusing their money. In January 2022 it fined Naqvi personally $135.6 million, alleging he helped hide a $400 million shortfall by borrowing money to make bank balances look healthy at key dates. He disputed the fine, but a Dubai court later issued a default judgment for the amount when he did not file a defence.

Separately, Abraaj's liquidators claimed in 2020 that Naqvi had moved about $385 million for his own use between 2009 and 2018, across more than 3,700 transactions.

Where it stands

On 8 March 2023 the UK High Court refused Naqvi's last challenge to his extradition to the United States, where he faces charges that carry up to 291 years in prison if convicted. As of the most recent reporting we could confirm, from March 2024, he remained in London on bail and continued to deny wrongdoing. We will update this story if he is extradited or tried.

What the ledger teaches

Abraaj did not fall because one investment went wrong. It fell because investors asked to see their cash and the answer did not match the story. In a fund, the investors' money and the manager's money must be kept apart. When they mix, a firm can look healthy for years while the hole grows.

For Pakistan the story stings twice. Abraaj was proof that a Pakistani founder could build a global firm. Its collapse also hurt the very idea it sold: that investing in places like Karachi could be safe, profitable and good.

Questions to ask any fund manager

• Where exactly is the money, and can an outsider check the bank balance?
• Does the firm's own income cover its own costs?
• Who values the investments, and are they independent?
• If cash is sitting unused, why?

The ledger

Munshi's noteWhen a fund holds other people's money, the first question is simple: is the cash where they say it is? Abraaj fell the day someone asked.

Sources

1. Bloomberg (via BQ Prime), April 2019Abraaj CEO charged with fraud in U.S. after firm's collapse
2. Gulf News, 4 November 2021Abraaj scandal in a nutshell
3. Arab News (AP), 27 January 2022Dubai regulator issues $135.5 million fine on Pakistani founder of Abraaj Group
4. Arabian Business, June 2020Arif Naqvi's theft from Abraaj totals $385m, liquidators claim
5. Dawn, 9 March 2023Arif Naqvi loses final appeal against extradition to US
6. The National, December 2023 (updated March 2024)Arif Naqvi in crosshairs for Dubai debt as he battles extradition from London to US
7. WikipediaArif Naqvi

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