Seen from space, the earth has been transformed in the last fifty years as new clusters of yellow-white lights sprang up across Asia, Africa and Latin America. The lights mark the spread of globalisation, as sprawling cities emerged to rival London, Paris, and New York in size. Where once there was darkness now there is light. Karachi, Kolkata, Dubai, Cairo, Riyadh, Jakarta, Lima, and Lagos shine into the night sky and claim their places in a global constellation that includes the electrified urban centres of North America and Europe.

The cities glowed like pots of gold to Arif Naqvi, the founder of Abraaj Group, the largest private equity firm operating in emerging markets. The new cities were treasure to exploit, fruits of globalisation, beacons of a new prosperity that was emerging as millions of people moved out of the countryside.

“It is cities, not countries, that are going to be driving economic growth,” Arif told investors and politicians. “You can invest into the infrastructure of cities and almost anything you touch, whether it’s logistics, healthcare, education, financial services, consumer goods, and services — and I could keep going on with that list — there will always be an investible opportunity within urbanisation that is going to land up helping you make money.”

To seize this opportunity, Arif came up with his grandest, most desperate plan. Even though Abraaj was in severe financial trouble in 2016, Arif decided to try and raise $6 billion for the biggest emerging markets private equity fund the world had ever seen. The fund would buy companies serving the emerging middle classes in the new cities illuminating the night. Abraaj’s internal code name for this fund was Pangea, after the united supercontinent that existed hundreds of millions of years ago.

Raising the $6 billion fund was the only way to keep Abraaj afloat. Many of the firm’s investments were struggling and Arif couldn’t pay bills without stealing. Convincing investors to hand over $6 billion wasn’t going to be easy, and Arif’s skill as a storyteller was put to its greatest test yet.

He launched a massive marketing campaign to herald the ambitious new fund. Glitzy promotional materials were designed and sent out to investors. Slick new videos were posted on the internet. Abraaj boasted net annual returns of 17.9 percent, ranking the firm among the best private equity houses globally. Abraaj also claimed an unusually low loss ratio for its investments, of less than two percent. The numbers were fiction.

The new fund, formally called Abraaj Private Equity Fund VI, was registered in the Cayman Islands, like most of Abraaj’s funds and operating units. This helped executives and investors minimise the amount of tax they paid.

Arif worked on the details of the fund with his bankers and lawyers in Dubai, London, and New York. The New York law firm Weil, Gotshal & Manges was Arif’s legal adviser for the new fund. The London law firms Freshfields and Allen & Overy worked closely with him too. [The global accounting firm] KPMG did the auditing.

“Thank you so much for all your support,” Arif wrote to one adviser in New York. “Let’s have a massive success!”

Deep-pocketed American pension funds were the holy grail of private equity firms trying to raise money, and Arif hired more American employees to help win their support. Vinay Chawla joined Abraaj from the US State Department. Arif also brought on board Mark Bourgeois, an evangelical Christian from Tennessee.

Short and tanned with slicked-back hair, Mark had an easy southern charm. He dressed like a Wall Street banker from the 1980s, favoring pin-striped suits and brightly coloured shirts with collars and cuffs accented in different colors. During his two decades in the finance industry, Mark had raised billions of dollars for private equity funds. He became chief executive of Atlantic Pacific Capital, a New York-based advisory firm, after working at the investment banks Credit Suisse and UBS. He had clients around the world and was close to Erik Hirsch, a senior executive at Hamilton Lane, a US investment firm that advised American pension funds on billions of dollars’ worth of investments in private equity funds.

Arif put Mark in charge of raising the new $6 billion fund. He was a zealous supporter of Arif’s mission to do good. He was heavily involved in his local church and in supporting an orphanage in Africa. Altruism wasn’t his only motivation for being at Abraaj, though — he would earn a large bonus if the fundraising was successful.

While Mark opened doors for Arif on Wall Street, another new hire boosted his credibility in Washington. Matt McGuire was a blue-eyed American in his early forties who had served as his country’s representative on the board of the World Bank after stints at the Department of Commerce and at a hedge fund. President Obama had nominated Matt for the World Bank role. The two had become friends years earlier in Chicago, where they played basketball together and their daughters attended the same school.

Matt had been keenly interested in the world beyond America’s borders since childhood. His parents had both worked for the volunteer Peace Corps — his father in East Pakistan, which later became Bangladesh, and his mother in Ghana. His father died when he was six but left a profound impression on his son, instilling in the youngster a desire to use America’s power and influence to make the world a better place.

As Matt’s time at the World Bank drew to an end, he struck upon the idea of setting up a policy institute to promote investment in emerging markets. He pitched the idea to leading American private equity tycoons and then contacted Arif. Matt and Arif immediately hit it off. Matt was a perfect foil for Arif, who was supportive of his policy institute idea and offered to hire him. Matt called Obama for advice on his next career move. Obama told him to contact his old college friend Wahid Hamid, who was a partner at Abraaj. Matt contacted Wahid, who didn’t deter him from joining but advised him to check it out first.

Matt flew to Dubai in early 2017 to attend Abraaj’s annual investor meeting. There were five hundred people in attendance including top bankers, politicians and journalists. John Kerry, who had recently stepped down as secretary of state, gave a speech after Arif paid $250,500 for him to show up. Matt had heard that Arif was trying to hire Kerry and was offering the former secretary of state millions of dollars a year to join Abraaj. Kerry was considering the opportunity and sounded out friends and colleagues about Abraaj.

As Matt sat down for dinner at an Abraaj event in the towering Burj Khalifa, he surveyed the great and the good clustered around the room. He wasn’t easily impressed by such meetings, but had to admit to himself that the gathering was significant. There was Vali Nasr, dean of the Johns Hopkins School of Advanced International Studies. And there was Kathy Calvin, the head of the United Nations Foundation. The Financial Times journalist Henny Sender moderated some of the discussions. All the signs seemed to show that Arif was a credible person to work for, Matt thought. He decided to join Abraaj.

By 2017 Abraaj’s cash crisis was truly alarming. Rafique Lakhani, an Abraaj employee with responsibility for managing the firm’s finances, told Arif that Abraaj needed to find $85 million by the end of March 2017 — even after recently plundering the firm’s healthcare fund, which was supposed to be used to buy and build hospitals in South Asia and Africa. Rafique told Arif that the healthcare fund had committed to invest $173 million in hospital projects that it couldn’t afford to pay for — including one in Lahore — because there wasn’t enough money left in the fund.

But these problems didn’t stop Arif from launching into a new world tour to spread the message that he was raising the new fund. Arif spared no expense when partying at the World Economic Forum in Davos, Switzerland, in January 2017. His display at the annual gathering of billionaires was more splendid than ever. As snow fell on the mountain resort on the evening of January 18, Arif hosted Pakistani Prime Minister Nawaz Sharif and his retinue at a sumptuous dinner in the Morosani Schweizerhof Hotel.

The feast cost Abraaj a grand total of $348,673, the average combined annual income of 271 Pakistanis. The bill to adorn the dining tables with flowers was $7,357.50, the annual income of five Pakistanis. The Pakistani singers Akhtar Chanal Zahri and Meesha Shafi were booked for $35,000 to entertain the elite crowd. Another $12,000 was spent on gifts for guests. Navaid Malik, a businessman who advised Abraaj, organised the evening and charged Abraaj $3,433.50 to stay at the Baur au Lac hotel in Zurich on his way to Davos with the official Pakistani delegation. He added a $981 charge for undisclosed extras.

By 2017 Abraaj’s cash crisis was truly alarming. Rafique Lakhani, an Abraaj employee with responsibility for managing the firm’s finances, told Arif that Abraaj needed to find $85 million by the end of March 2017 — even after recently plundering the firm’s healthcare fund, which was supposed to be used to buy and build hospitals in South Asia and Africa.

At the dinner, Arif rose from his seat next to Prime Minister Sharif to introduce his special guest. Flattery was his aim. Arif needed the prime minister’s help more than ever because completion of the sale of Karachi Electric, which Abraaj owned, to Shanghai Electric was being delayed by government officials.

“Bismillah al Rahman al Rahim,” Arif said. “Your excellency. Friends. Having built a life and a career outside Pakistan and built a business that is known around the world for what it does, the single point of pride that I have, more than anything else in what I do, is that I am a Pakistani.”

There was a burst of applause from the fifty guests, who cost Abraaj 250 Swiss francs each to feed.

“This is a country that, over time, all of you have seen go through aches, pains, growing troubles and, in my case, defeat on the cricket field. Nothing upsets me more than that,” Arif said, prompting laughter.

“But the reality is that Pakistan is a country on the move. Pakistan is a country that has fantastic potential,” he said. “There are very few places where you can get as much clarity in terms of government regulations, and I am extremely pleased to say that this government — in my experience more than any other government in the past — has done more to make a business-friendly environment possible.”

In other words, Arif’s speech could be interpreted as a request to the prime minister to speed up approval of the sale of Karachi Electric. The prime minister thanked Arif for his hospitality but gave no public assurances on Karachi Electric.

After the dinner ended, Arif emailed Rafique, who was desperate to talk to him about the financial problems at Abraaj. Arif promised they would talk soon. In the meantime, he told Rafique to use his common sense. “Just don’t shut down the business!” Arif wrote.

The feast cost Abraaj a grand total of $348,673, the average combined annual income of 271 Pakistanis. The bill to adorn the dining tables with flowers was $7,357.50, the annual income of five Pakistanis. The Pakistani singers Akhtar Chanal Zahri and Meesha Shafi were booked for $35,000 to entertain the elite crowd.

Weeks later, Arif flew on to Los Angeles to promote Abraaj at a conference that President George W. Bush also attended. Other speakers included the chiefs of JP Morgan and Google. When Arif’s turn to speak about his endeavours came around, he compared himself to Moses, the biblical prophet.

“It is about creating a better world,” Arif said. “It won’t come up as a directive on a tablet on a burnt-out mountain. It will be us that will figure it out,” he said. “We will be the front-runners of changing the way the world thinks.”

But creating a better world was way more difficult than Arif let on in his conference speeches. Crises were breaking out across his empire. In Pakistan, the Supreme Court removed Prime Minister Nawaz Sharif from office in July 2017. The prime minister was convicted of corruption in a case centring on the ownership of London apartments his family used. The judgment dealt a heavy blow to Arif’s hopes of quickly concluding the sale of Karachi Electric.

To make matters worse, Bashir Memon, a respected policeman who led Pakistan’s Federal Investigation Agency, probed Karachi Electric’s unpaid bills and resolved that the company owed millions of dollars to a government-owned gas company.

In Saudi Arabia, two Abraaj investments were struggling. The Tadawi pharmacy chain and the Kudu fast-food restaurant group were close to bankruptcy and threatened to wipe out tens of millions of dollars of investor money.

In Turkey, Yörsan, a dairy products maker Abraaj owned, was in critical condition. The company had dropped to sixth place among its competitors, with a 27 percent slump in sales in the first half of 2017.

When Arif returned to Dubai, he called a meeting of his most senior colleagues to discuss the bitter reality. They couldn’t possibly raise a $6 billion fund if they told investors the truth about their difficulties. With performance lagging across their investment portfolio, the Abraaj team decided to fraudulently increase the valuation of the companies Abraaj owned, regardless of how they were performing.

They increased Yörsan’s valuation even though its sales and profits were falling. The boost made Yörsan look better on paper than it really was and helped Arif maintain the illusion of strong performance as he raised the new fund. Arif instructed his colleagues to mark up the value of other investments.

“The valuations are not moving in the directions we require,” Waqar Siddique, a senior Abraaj executive who was also Arif’s brother-in-law, told Arif.

Arif sat down with a loyal employee who helped coordinate the valuations process. When their discussion finished, the employee contacted Mustafa Abdel-Wadood, Abraaj’s top dealmaker.

“We sat with Arif on valuations and have the proposed changes,” the employee told Mustafa.

Freshly inflated valuations were soon sent to Arif for him to consider.

“Is this sufficient?” Arif wrote in an email to Rafique and Ashish Dave, Abraaj’s chief financial officer. “What more do we need to get into the safe zone.”

Ashish forwarded the email to an employee who he told to “plug in” the manipulated valuations to a marketing document for investors.

Sev Vettivetpillai, a top Abraaj executive, weighed in and suggested that a $5 million uplift could be added to the value of the healthcare fund investments.

The systematic valuation fraud inside Abraaj didn’t go entirely unchallenged. Some junior employees knew it was wrong and resisted. Arif and his team wanted to value Kudu, the Saudi restaurant chain, at 1.4 times the amount Abraaj had invested in the company. But the American private equity firm TPG was also an investor in Kudu and thought the company was only worth half the value Abraaj was proposing, a junior Abraaj employee pointed out in an internal email.

“We need to bring valuation down to cost,” another employee responded.

Mustafa forwarded the emails to Arif, who was in no mood for discussion. Arif told Mustafa that no reductions in valuation should be made and said that he needed to do more to keep his team in line.

“Let them understand the big picture and why we are being pushy,” Arif said in an email. “Even little things like writing down Kudu should be a no no, and we should reflect our aspirations in the others.

Arif unleashed a tirade of abuse. Mustafa usually apologised or stayed silent when this happened but this time he decided to respond. “If you’re not willing to explain what you just said then there is no point me being here,” Mustafa said.

“I need a minimum of $20-25 million profit at Abraaj Holdings in order to keep this effing business afloat and show strength to the banks.”

The junior employee who bravely objected to the valuation fraud was brushed aside. Arif ordered Mustafa to silence any other team members who suggested more write-downs. Kudu’s inflated value was added to the track record. In total, Abraaj inflated the value of its assets by more than $500 million.

The tense discussions were fraying Arif’s relationship with Mustafa, who couldn’t deal with Arif’s increasing outbursts of fury. They almost came to blows during one tense exchange in the summer of 2017 when Arif was lecturing Mustafa, his brother-in-law Waqar, and his chief of staff, Anuscha Ahmed, during a meeting.

“Can you just repeat what you said?” Mustafa asked Arif politely. “I’m not sure I understood.”

Arif unleashed a tirade of abuse. Mustafa usually apologised or stayed silent when this happened but this time he decided to respond. “If you’re not willing to explain what you just said then there is no point me being here,” Mustafa said.

“If you walk out you probably don’t ever want to come in again,” Arif said.

“That’s actually probably not a bad idea,” Mustafa replied.

He got up and walked out. Arif followed him into the corridor and confronted him by posturing aggressively and jabbing his finger into Mustafa’s chest. Mustafa swore at Arif and walked away. That night, when Mustafa was at home, his phone rang. It was Arif. Mustafa didn’t feel like talking but he picked up anyway.

“I’m feeling really down,” Arif said. “Can you come over to my house?”

“Why?” Mustafa asked.

Arif said he regretted the confrontation and wanted to discuss it. He asked Mustafa to apologise. Mustafa refused. Arif said he needed to tell Anuscha, who had seen Mustafa stand up to him, that he had received an apology. Mustafa refused again. Even so, Arif later told Anuscha that Mustafa had apologised. He had to maintain his public image.

Arif’s erratic behavior was burning through the goodwill of his senior staff. Mustafa resolved to quit. But it wasn’t so easy to escape, because Arif kept him at heel through a strange combination of bullying and kindness. Soon after their confrontation, Mustafa’s mother passed away from cancer and he returned home to Cairo for her funeral. He put aside the pressures of Abraaj for a few days and mourned his mother with family and friends.

When Arif heard what had happened, he flew to Cairo to pay his respects. Arif was the last person Mustafa wanted to see, but it was impossible to avoid Arif when he showed up at Mustafa’s family home. Mustafa let him in and they sat together for a few hours. The gesture touched Mustafa. He soon returned to work to complete the $6 billion fundraising.

The decision to lie to investors was paying off and money was rolling in for the new fund. The Washington State Investment Board, one of the world’s largest and most experienced investors in private equity funds, was considering making a $250 million investment in Abraaj for the first time. Hamilton Lane, which advised Washington State, recommended Abraaj because of its apparently high returns and low losses.

Arif flew to Olympia, the capital of Washington State, to meet pension fund officials. Wahid and Anuscha accompanied him. When they arrived, the Washington State Investment Board official Fabrizio Natale supported their request for funds.

“Abraaj has a large, institutionalised team with extensive emerging and frontier markets experience and an on-the-ground presence,” Natale told colleagues.

Arif explained to the Washington officials that Abraaj invested in consumer goods, financial services, logistics, healthcare, and education companies in cities across developing markets. He made a positive impression.

“Make sure you take a look at the Abraaj Presentation from the Private Markets meeting today,” Stephen Backholm, the pension fund’s director of innovation, told the pension fund’s chief financial officer. “Great presentation and engaging information. I found the founder (who presented) to be very articulate and insightful.”

Washington unanimously approved the $250 million investment in Abraaj. It was a significant endorsement and was soon followed by commitments to invest from the Texas Retirement System, the Teachers’ Retirement System of Louisiana, the Hawaii Employees’ Retirement System, and the American Federation of Musicians and Employers’ Pension Fund.

Arif had finally cracked open the pension pots of America in a big way. But inside Abraaj, rumours were spreading about Arif manipulating investment valuations and the gossip was making some old hands uncomfortable. Sev felt the sting of his conscience even as he conspired with Arif. He knew that his own presence at Abraaj gave Arif cover for his misdeeds.

“It is people like us that give credibility to characters such as Arif because the investors know that Arif is a strong character but at the same time they think we probably will not support those kinds of things,” Sev told a colleague. “And since we in front of them confirm what bullshit that Arif says, they are ignoring their own instinct.”

Simon Clark is a Wall Street Journal reporter based in London. His investigative reporting has led him to the poppy fields of Afghanistan, the copper mines of Congo and to many banks in the City of London. He was nominated for a Pulitzer Prize in 2016. He tweets @SimonWSJ

Will Louch is at law school in London. He was previously a Wall Street Journal reporter covering private equity in London and New York. Before that, he was based in Brussels where he wrote about European politics. He tweets @william_louch

Published in Dawn, EOS, July 11th, 2021