Abu Dhabi/Dubai: Colony NorthStar Inc has ended talks to buy a majority stake in the fund-management unit of embattled Abraaj Group, which has been roiled in recent months by allegations of misused funds, according to people with knowledge of the matter.

The US asset manager walked away from a possible deal after its due diligence efforts raised concerns about the Middle East buyout firm, the people said, asking not to be identified because the talks are private. Cerberus Capital Management LP is still in discussions about the stake and is carrying out its own due diligence, the people said.

A spokeswoman for Abraaj said discussions for the sale of the fund-management business “are at an advanced stage,” without disclosing the identity of the potential suitors or commenting specifically about Colony NorthStar. Representatives for Colony NorthStar and Cerberus declined to comment.

The collapse of the talks is a further blow for Dubai-based Abraaj as it faces growing concerns about its viability amid impending loan repayments and greater scrutiny from its local regulator, the people said. Abraaj was confident of finding a taker for its fund-management unit within weeks in a deal worth up to $600 million (Dh2.2 billion), the Financial Times reported this month.

The buyout firm on Thursday said it’s “working constructively with its creditors to resolve outstanding obligations,” and that Abraaj is working with its bankers to “resolve matters in an orderly process.”

The talks with Cerberus are less advanced than the ones with Colony NorthStar had been, the people said.

Intense scrutiny

Abraaj has been under intense scrutiny since February when four high-profile investors including the Bill & Melinda Gates Foundation commissioned an audit to investigate the alleged mismanagement of money in its $1 billion health-care fund. Since then, preliminary findings from a separate review by Deloitte LLP — made at Abraaj’s request — have also thrown out potential discrepancies in the accounting at some of its other pools, according to people with knowledge of the matter.

The furore is a stunning turn of events for Abraaj, which grew to become the Gulf region’s biggest buyout firm with $13.6 billion of assets last year. Founded in 2002 by Karachi-born Arif Naqvi, the firm offered global investors quick-and-easy access to emerging- and frontier-markets and grew in tandem with Dubai’s financial centre.