Leading Investment Firm Replaces Chief After Client Complaints

The Abraaj Group, one of the largest private equity firms specializing in emerging markets, said Friday that its founder, Arif Naqvi, would no longer oversee the firm’s asset management business.

The abrupt move follows claims made by clients that the Dubai-based firm, which manages $14 billion in assets, misused investor money in a fund that invests in hospitals and other health care businesses. Abraaj said Friday that it would temporarily halt investment activities until it completed a broad corporate restructuring.

The World Bank and the Bill and Melinda Gates Foundation were among the prominent investors that, over the past year, have been questioning the firm’s governance practices.

The investors’ main fear was that Abraaj might have used cash allocated for investments in hospitals in Pakistan and Kenya for other, unauthorized purposes. Suspicions arose when investors learned that more than $200 million, which the firm had said it would use on investments in 2016, hadn’t actually been deployed.

The Abraaj Group previously said the cash had not been invested because of regulatory holdups in countries where the fund was investing.

But Abraaj clients weren’t satisfied, and they demanded that an independent accountant be hired to determine how the funds were used over the past year.

Naqvi hired KPMG, the auditing giant, to look into the matter. Earlier this month, KPMG said the Abraaj Group had acted appropriately in its use of client funds.

In Friday’s statement, Abraaj said two senior executives, Omar Lodhi and Selcuk Yorgancioglu, would become co-chief executives, replacing Naqvi as stewards for Abraaj funds.

Naqvi, Abraaj said, would retain a nonexecutive role as a member of the firm’s investment committee.

The Abraaj Group also said it would hire independent consultants to scrutinize its governance standards and how the firm is organized.

Until now, Naqvi had controlled every aspect of Abraaj, from the investments it made to the people it hired and, critically, how client money was deployed.

A native of Pakistan, Naqvi was Abraaj’s public face and its primary fundraiser. His pitch was that investing in markets like Egypt, Turkey and India would generate great returns and have a positive social impact as well.

The World Bank in particular championed Naqvi’s cause and the idea that private investors like Abraaj could replace traditional financing techniques — namely, loans from the public sector — to foster economic development in developing nations.

Through the World Bank’s private sector investment arm, the International Finance Corp., the bank was among the larger clients of Abraaj, putting $300 million into the firm.