Dubai: While most investors around the world are nervous about the new Trump administration or Brexit, private equity investor Abraaj is undeterred.
Instead, Abraaj is continuing to focus on micro trends, which are witnessing exponential growth far more than what their respective country’s GDP growth numbers suggest.
“We expect 2017 to be better but unknown factors would be Brexit and Trump. We should continue to keep investing in themes that are not dependent or not as highly sensitive to things like Trump or Brexit,” Sev Vettivetpillai, Member of Executive and Investment Committees, and Chairman of Partners Council at The Abraaj Group told Gulf News in an exclusive interview.
Abraaj, which manages $10 billion (Dh36.7 billion) across investment strategies, is betting on specific indispensable themes like health care, education, and other local consumption stories.
The group plans to invest $1 billion in 15 transactions on private equity side.
“We may do 4-5 on the energy side, about 3-4 on health care, and another 5 on the credit side,” Vettivetpillai said, adding, “in terms of our current position going forward, we focus on local consumption stories”.
For example, cities in Kenya have been growing 2-3 times faster than the country. Seventy per cent of the country’s GDP is based on consumption, urbanisation.
“Over a billion people will move to cities over the next 15 years. Over two-thirds of the global consumption is going from these markets, which is now around 50:50. The growth in consumption is over 60 per cent, you can’t reverse those numbers,” Vettivetpillai said, adding that the themes won’t get impacted by global uncertainty.
Plus, the group has been structuring their deal to lower the impact of huge volatility in currency.
For example, Liberty Star Consumer (Libstar), the company that Abraaj invested in in October 2014 grew by 100 per cent even as the South African economy witnessed a 2-3 per cent growth in GDP. The growth was despite volatile swings of 20-30 per cent in South African Rand.
“The company structured the deal in such a way that Abraaj exposed only half of its investments to rand to enhance our returns,” Vettivetpillai said.
“We have been doing for the past 20 years. We have seen these trends many many times over. We take investment risk decision, we also take into account portfolio risk, and we also take into account the currency risks. There is no full hedge. If there was, it wouldn’t have made economic sense,” he added.
Abraaj is also bullish on private credit filling in the gap left by banks, which have been hesitant to loan to small and medium firms.
“In 2016, we saw a significant withdrawal of credits from foreign banks to local markets. Abraaj has now started to invest in private debt with hardly any competition.” Relationship with companies and understanding cash flows will help them to mitigate risks, said Vettivetpillai.
They plan IPOs for a couple of companies in North Africa, and sub Saharan Africa. “We are constantly looking at exits on an average of 15-16 exits a year. Every company is for sale. It is a question of price. If the pricing is right and timing is tight, then we may exit,” he said. The company has a portfolio of about 120 companies.
Despite volatility, Abraaj came out of 2016 “quite well”.
Abraaj gave 17-18 per cent of IRR in dollar terms, and exited from 15-17 businesses.
“We have spent 2 decades investing in our markets. We chose these businesses because we believe they were the businesses which are fundamentally driven. The fundamentals in the market are a lot more predictable in terms of macro and in of terms of micro, there were enough businesses that we backed whom we thought were at the right time at the right price,” Vettivetpillai said.
Abraaj has a diversified investor base. They have 350 investors, from North America, some in the far east, and Europe.
In all, Vettivetpillai has a simple message on his investments.
“Separating the micro trend from the macro, we believe that micro trend risk are far more important than the macro trend risk. It is important to keep an oversight of it, but it is not the major decision-making factor for investing,” he added.