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Abraaj in Talks to Sell Fund Unit Stake to Colony NorthStar

  • Dubai firm is restructuring amid reports of misused funds
  • Founder Arif Naqvi ceded control of fund-management unit

Abraaj Group, the Middle East buyout firm roiled by allegations of misused funds, is in talks to sell a majority stake in its fund-management unit to Colony NorthStar Inc. to help stabilize the business, according to people with knowledge of the matter.

Discussions between the Dubai-based firm and U.S. asset manager about the newly-separated investment unit are preliminary and may not result in a sale, given the complex structure of the underlying holding company and funds, said the people, asking not to be identified because the talks are private. Abraaj’s business may also draw interest from other investors, the people said.

Abraaj is considering the sale of the stake to raise cash amid heightened regulatory scrutiny and the departure of key executives, people with knowledge of the plans said in March. The firm is separating the fund business from its holding company in what it said was a planned restructuring accelerated by reports that money in its $1 billion health fund had been misused.

Representatives for Abraaj and Colony NorthStar declined to comment.

Middle East Interest

Colony NorthStar, the result of a merger between billionaire investor Tom Barrack’s Colony Capital Inc., NorthStar Asset Management Group Inc., and NorthStar Realty Finance Corp., includes an asset manager alongside its real estate investing business. Since combining, the company has been making bets on health-care properties and warehouses, and recently agreed to buy a stake in Accor SA’s property business alongside Saudi Arabia’s Public Investment Fund.

Abraaj is said to be working with investment bank Houlihan Lokey Inc. on negotiations with investors in the health fund that include The Bill & Melinda Gates Foundation. The company, which conducted an internal review and concluded that money in its health fund had been properly accounted for, has nevertheless been forced to return capital in a new global fund and halt fresh investments temporarily.

The firm is reorganizing its structure -- with founder Arif Naqvi ceding control of the fund-management business -- and plans to introduce new internal controls. It’s also cut about 15 percent of its total workforce.

— With assistance by Sarah Syed, and Arif Sharif

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