November 1, 2007

    Behind Madame Tussauds there lies the next private equity giant

    Dubai International Capital was founded only three years ago but it has plans to challenge buyout funds such as Blackstone and KKR

    Dubai International Capital, or DIC as it is better known, epitomises the very essence of the emirate’s vision to become a leading global force in the world of private equity and financial markets.

    Although most people think only of Madame Tussauds when they think of DIC, the group’s private equity division is only a small part of the whole.

    The real DIC is a much larger beast, juggling emerging markets, global equities and asset management. It looks and feels much more like Blackstone or Kohlberg Kravis Roberts – even down to the expensive artwork on the walls – than any other investment firm in the Middle East region. Importantly, it is also starting to behave like one. While entities such as Dubai Capital, DIC’s sister company within Dubai Holding, and Zabeel Capital eschew the notion of transparency, DIC appears to embrace it.

    While traditional Middle Eastern funds hide behind governments, sheikhs and wealthy individuals, DIC is starting to look beyond its own borders for foreign investment.

    Given its size and growth trajectory – DIC expects to have assets of about $25 billion (£12 billion) under management by 2009 – it is hard to believe that the group was founded only three years ago.

    DIC’s remit was to invest the excess cash of Dubai Holding, one of two sprawling conglomerates that effectively built and own the country’s entire commercial, real estate and financial operations.

    DIC is run by Sameer al-Ansari, a slick, media-savvy finance professional with ties to the Government, having served in the executive office of Sheikh Mohammed bin Rashid al-Maktoum, Dubai’s ruler. Mr al-Ansari said that he set about founding a firm that was not only going to invest in other private equity groups, although it does have stakes in Carlyle, KKR and 3i, but also one that would, as he put it, “become part of the club”.

    DIC’s private equity unit is now an independent business led by Sylvain Denis, as chief executive. Its flagship investment was the 2005 acquisition of Madame Tussauds, the waxworks museum in London, which Mr Denis says was the role model for DIC’s investment strategy.

    Tussauds was perfect because the group already had plans to expand throughout the Middle East and Asia, which clearly played to DIC’s core strengths. DIC went on to acquire Doncasters Group, the British engineering company, and Travelodge, the hotel group, among others.

    Mr Denis is ambitious and hopes to have more than $10 billion under management within the next couple of years. As part of that plan, DIC will launch its first fully fledged private equity fund in the first quarter of 2008. Although the fund will still be majority-financed by Sheikh Mohammed, a sizeable chunk of it – about 30 per cent or more – will be allocated to foreign investors, for the first time. This is another step towards the delicate transition of DIC into a mainstream private equity and finance firm that can compete with the giants of the sector in the United States and Europe.

    There are similar developments afoot in DIC’s emerging markets business, run by Rabih Khoury, its chief executive. The business already operates several funds in conjunction with partners, including HSBC, the bank. They invest in private and listed companies across a variety of sectors and countries, including Turkey, where it has just invested in a Carlyle fund, Singapore, North Africa and Egypt. It is also actively looking in India, where the lack of infrastructure presents huge opportunities, Mr Khoury said.

    DIC acquired a stake in Daimler-Chrysler in 2005 and has since snapped up holdings in EADS, the parent company of Airbus, and HSBC, which is under attack from the activist fund manager Knight Vinke.

    Robert Jhaveri, managing director in charge of DIC’s global equities business, insists that DIC will always take a “friendly approach” to management of companies in which it invests and said that several of the world’s largest companies had been knocking at DIC’s door to get the emirate to take a look.

    Mr Jhaveri has a remit to take positions of $1 billion. To judge by his plans to go from eight to twenty people within a year, he clearly intends to waste no time putting the money to work. DIC sees Asia – Japan, India, China and South Korea – as the next potential hot spot and has already begun dialogue with a number of potential targets there.

    The group has also built up an asset management arm, whose chief executive is Samer al-Saifi, which allows investors, primarily British and American pension funds, to co-invest with DIC in various funds. “We’re mature enough and ready to do something like this,” Mr al-Saifi said.

    As executive chairman, Mr al-Ansari lets his lieutenants get on with day-to-day running of their businesses, but he has retained one key role: to identify strategic opportunities that do not necessarily fit elsewhere in DIC.

    It was his office that made the move on Och-Ziff, the American hedge fund manager, and it is Mr al-Ansari and his right-hand man, Anand Krishnan, the chief operating officer, who are exploring a joint bid for Northern Rock with Virgin Group.

    So, might DIC go public? An IPO of DIC would give a big boost to Dubai’s vision of global capitalism and its desire to be the focal point of commerce and finance in the Middle East. However, Mr al-Ansari said that he was in no hurry to list on the public market, despite news that DP World, the global ports operator, plans to list a 20 per cent stake on the nascent DIFX stock exchange.

    “Would we do it?” Mr al-Ansari asked. “There is no such plan to list DIC.” But he does not dismiss the idea of listing one of its many growing businesses and points at emerging markets as the first potential candidate.

    Local knowledge

    1 Lost in translation – the Dubai police department issues a licence for those residents who want to legally consume alcoholic beverages at home. Its literal translation into English reads “an alcoholic’s licence”.

    2 Britain’s Repton public school has just opened up in Dubai to cater for the region’s growing number of expats and locals who would otherwise send their children abroad to study. It hopes to educate 1,500 students by its fifth year.

    3 The International Cricket Council, the governing body for world cricket, has moved its headquarters to Dubai from Lord’s – the home of English cricket.

    4 There are now more than 100,000 British expats living in Dubai.

    5 Under Dubai’s growth plan for 2015, the local population is expected to fall from about 10 per cent today to less than 1 per cent, a statistically insignificant proportion. The authorities currently issue some 30,000 work permits a week.

    6 The personal fortune of Sheikh Mohammad bin Rashed al-Maktoum, the UAE Vice-President, Prime Minister and ruler of Dubai, is estimated at £14 billion. The scale of his fortune makes him 47 times richer than the Queen.

    7 Dubai, which has an obsession with being the biggest and best, is to open its first boutique hotel that specialises in delivering plastic surgery later this year. The hotel is called the Dubai Aesthetics Clinic and Spa.


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