Report: Gulf investors to raise $10bn in Shariah funds

Abu Dhabi, Ithmaar and Gulf Finance House are reportedly looking to raise three private equity funds, including one focused on infrastructure and another on the hospitality sector.

The Abu Dhabi Investment House, Bahrain’s Ithmaar Bank and Gulf Finance House have reportedly partnered to create three new Middle East-focused funds.

The three new Shariah compliant funds – InfraCapital, AgriCapital and the Hospitality Development Fund – will initially raise $2.8 billion (€1.9 billion) from the companies’ balance sheets and private investors, according to a report in Abu Dhabi’s The National newspaper. However, the funds are authorized to raise up to $10 billion in total.

The move comes as Middle East investors find themselves flush with liquidity resulting from rising global oil prices. Stephen Jen, chief currency economist at Morgan Stanley, estimates that revenues of oil exporting countries are now running at $7 billion a day, according to a recently published report. At the same time, rising food and energy prices, along with climate change and extreme weather pose new challenges to the region’s growth and development. It is with this in mind that the three partners are creating the new funds, they said.

InfraCapital will raise $1.5 billion initially and will have a pool of up to $6 billion. The fund will invest in power, water and transportation infrastructure needed to support large property projects across the Middle East. Company officials estimate that the Middle East and North Africa will demand $545 billion of investment in transport, power, water, energy, educational and social infrastructure over the next decade.

The AgriCapital fund will focus on specialist investments across food production, livestock, biomedicine, bio-fuels and agricultural technology sectors. It will have initial capital of $1 billion and proposed authorized capital totaling $3 billion. The companies estimate that domestic production of crops and livestock in the Middle East amounts to less than half of annual consumption. This, combined with extreme global weather conditions, rising energy prices and demand for bio-fuels has caused food prices to leap by 60 percent over the past two years. The AgriCapital fund will seek to invest in agricultural ventures that will ease the consequences of these trends for the Middle East.

The last of the three, the Hospitality Development Fund, will have initial capital of at least $300 million and authorized funding of $1 billion. It will focus on developing new hospitality-centric vehicles, including hotels, transport solutions and apartment complexes as well as existing hospitality companies that show “tremendous potential for growth.” It will be opened to investors in the next quarter.

“With the launch of these new companies, we are confident that the region will have access to the resources and expertise necessary to continue its long term growth and development,” said Khalid Abdulla-Janahi, chairman of Ithmaar Bank, in a statement.

For the Gulf Finance House, the announcement marks the second big partnership in as many months. In July, the firm announced that it would partner with the Emirates International Investment Company, Khaleej Development Company, Q-Invest and First Energy Bank to create HadeedMENA, a new steel manufacturer focused on the Middle East and Northern Africa region. The estimated end value of the deal is $5 billion.