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NAIROBI, Kenya — The eyes of the private equity investor lit up as he strode across the empty floor of a recently built hospital here. There was not much to see: a stretch of unfinished concrete, and steel bars pushed into a corner. But Khawar Mann of the Abraaj Group, an investment firm based in Dubai that specializes in developing markets, saw something else. Room for more patients — and a nice return on his investment. “You could squeeze another 50 beds in here, easy,” he said. “That will really improve profits.” Abraaj is trying to do something that hasn’t been tried before: build a global network of hospitals across cultures and in some of the poorest parts of the world — including India, Pakistan, Ethiopia and here in Kenya. Mr. Mann’s new fund has just bought a fastgrowing hospital in India and is now trying to export its business model to Africa. Even in rich countries with sophisticated medical markets, it can be tricky, given vastly different regulatory regimes and national quirks, for a hospital to go global.
By Landon Thomas Jr. (NYT)
Few have done it. Abraaj, however, is betting that Indians, Nigerians and Pakistanis, who in many cases have annual incomes of no more than $1,000, will dip into their savings to pay for an angioplasty or some other necessary, but not necessarily cheap, procedure. The process is further complicated by cultural differences. The Abraajowned hospital chain in Hyderabad, India, for instance, is run by a doctor so revered locally that he approaches “guru” status. Some patients refer to him as a god. As a business model, that might not scale. Still, India, Kenya and other lessdeveloped economies share crucial similarities. Governmentrun hospitals offer cheap or even free care, but they can be extremely overcrowded and grim. With personal incomes rising, Abraaj thinks an emerging middle class of teachers, smallbusiness owners, callcenter workers and others will be eager to pay private doctors for better care. Metropolitan Hospital, located in the rough eastern section of Kenya’s capital, is no Mt. Sinai. The operating theaters are rudimentary. Some rooms, while clean, lack curtains for windows and patients alike. Outside, children play barefoot soccer on a stony field in a suburban sprawl that not long ago displaced the big game that once grazed here. But in a country where the main afflictions are malaria, meningitis and road accidents, the 150bed hospital has become a destination for people willing to pay for decent medical attention. And then there is the rapid rise of unfamiliar ailments in poorer countries — diabetes, heart disease and obesity. They, too, are a byproduct of booming economies and rising wages, which enable unhealthier diets. “Nairobi is a sweet spot for us,” Mr. Mann said. “There is a big population that is growing. You have emerging middle incomes. And there is a massive need for health care.” He was in town to — he hopes — clinch a deal to buy Metropolitan for the $1 billion health care fund that Abraaj started this year. Mr. Mann is not the only one with this idea: Eight other private equity investors have visited recently, according to Metropolitan’s chief executive.
Abraaj’s fund includes money from the Bill & Melinda Gates Foundation, the medical parts companies Philips Healthcare and Medtronic, as well as other big institutional investors. “There will be some heavy lifting ahead — $1 billion is a lot of money to deploy in these types of markets,” said Maria Kozloski, who oversees private equity investments at the International Finance Corporation, the finance arm of the World Bank, which has also invested in the fund. “The opportunity is compelling, but it’s going to take some time.” The fund’s size also reflects investors’ appetite for new ways to invest in emerging markets — an asset class that represents onehalf of the global economy — after four years of soso returns in publicly traded markets. Abraaj is not well known in the usual private equity circles of New York and London.
But with $10 billion under management, among the most any private equity firm has invested in these markets, its name is well traveled in the Middle East, South Asia and Africa. For years now, its founder, Arif Naqvi, has been pushing the notion that the best way for longterm investors to benefit from core emerging market themes — growing urbanization and consumption — is through longterm private equity investments that target specific business sectors, as opposed to volatile stock and bond market bets. The health care fund, which Mr. Naqvi conceived, is a prime example. Most emerging market investors tend to get their exposure via public stock and bond markets, for instance, by buying shares in Brazilian oil companies or Russian government bonds. But these investments tend to be extremely volatile, shooting up and down in tune with ever shifting risk perceptions in a given country. Abraaj, by contrast, tries to spot investment ideas less likely to be whipsawed by the headlines. In an interview, Mr. Naqvi cited a recent investment in a Turkish dairy company — made at a time when Turks were protesting against their president, Recep Tayyip Erdogan. “Turks will drink milk irrespective of who governs them,” Mr. Naqvi said Selling beer to thirsty Ethiopians or dairy products to Turks is a fairly simple proposition. And it gets at the core thesis of investing in these markets, which is to take advantage of young and growing populations in rapidly developing economies. The trick, of course, is to pick the right companies — because there is no quick and easy way to dump a stake in a private company, as you can with a stock on a public exchange. On the Hunt for Hospitals It is this fundamental challenge — finding the right company, with the right management team — that has kept emerging market private equity funds from growing like their larger peers in more developed markets.
After all, it can be hard to get a true reading of your business partner in Jakarta, Indonesia, if you are sitting in New York, London or Hong Kong, as is the case with most private equity shops. Abraaj tries to solve that by being based in Dubai and maintaining 20 regional offices, in places like Cairo and Karachi, Pakistan. Its principals also hail from these markets. In addition to Mr. Naqvi, who is from Pakistan, the firm’s senior partners are citizens of Egypt, Ghana, India, Mexico and Turkey. The 48 year old Mr. Mann is typical in this respect. Born in the dicier precincts of Birmingham, England, to parents who had recently immigrated from Pakistan, Mr. Mann went to Cambridge, won a scholarship to the Wharton School and dropped his plan to become a doctor, switching to law and finance. Today he lives in Dubai and spends at least three weeks a month searching for hospitals and health clinics to buy in places like Ethiopia, Nigeria and Pakistan. He wears the tightfitting suits of a moneycenter banker, carries a fancy handbag and converses fluently in Urdu and Hindi. Mr. Mann, who works with a large team of bankers and health professionals in managing the fund, cuts a striking figure in Nairobi, pacing the halls of the two hospitals he’s scouting out — Metropolitan and Nairobi Women’s Hospital. Nairobi Women’s is one of the city’s largest private hospitals, originally founded by an ambitious entrepreneur, Dr. Sam Thenya, to provide care to women experiencing domestic abuse. With his slick suit and practiced smile, Dr. Thenya seems more a deal maker than a doctor. Both he and Mr. Mann caused a bit of a stir, rushing up and down the hospital’s spartan hallways and bursting into crowded patient rooms. Mr. Mann brimmed with questions about how to get doctors to see more patients and provide them with more profitable services. In a laboratory where blood samples from patients are analyzed, Mr. Mann asked how long each test took. Between 15 to 30 minutes, he is told. “That’s good,” he replied. “You want to get the tests back as quickly as possible.” Then Mr. Mann poked his head into the room housing the hospital’s single CT scan machine. The room was empty but for a boredlooking attendant hunched over a computer. These machines are a rarity in Kenya, and for hospitals looking to maximize profits, they are crucial pieces of equipment. Mr. Mann asked the doctor how many scans he performed in a day. About seven, came the reply. He shook his head. “You could be making a lot more money out of that machine,” Mr. Mann said. “You could be doing as many as 15 to 20 patients a day. A machine like this can really drive profitability.” ‘Not Mother Teresa Stuff’ Mr. Naqvi, in marketing Abraaj’s health fund, has insisted that its emphasis will be to have a positive social impact first and make money second. He refers to this mix of capitalism and social good — a bit majestically — as “partnership capital.” Nevertheless, both he and Mr. Mann know that any vision of a benevolent health conglomerate will not materialize unless they can find hospitals that are financially sound.
Perhaps the greatest tension for Abraaj to resolve is pricing. Few patients in India or Africa have health insurance. In Kenya, 67 percent of health expenditures are paid out of pocket. And in India — the fund’s central focus — that number is 60 percent. This makes for extremely pricesensitive patients. For example, the Hyderabad hospital chain that Abraaj recently bought, Care, has a business model that relies on patients paying $3,000 for a heart bypass operation, even though average income per capita in India is half that amount. (In the United States, similar treatment might cost $40,000, although insurance would help.) “Look, this is not Mother Teresa stuff — we have a responsibility to our investors,” Mr. Mann said. “But in this case, I really think that you can do good and make money.” That has been a driving philosophy behind Care Hospitals, India’s fifthlargest private hospital group. Founded by a team of Hyderabad cardiologists in the 1990s, Care has been a darling of private equity investors for the better part of 10 years. Last year, when Care again hit the market, Abraaj had to beat out a scrum of competing institutions. The Guru Will See You Now When Mr. Naqvi hired Mr. Mann to head the new fund in 2014, their first challenge was to find a country, and a hospital, that would serve as the driving force for the project. Because of India’s 200millionperson middle class and its wealth of doctors and surgeons trained to world standards, it was a logical place to start. Mr. Mann had long been aware of the niche that Care had carved out for itself, with its 16 hospitals serving a wide area in and around Hyderabad and other parts of central India. Mr. Mann knew, too, that to make the dream work across countries and continents, it would not be enough to swoop into Nigeria, buy the best hospital he could find and hope for the best.