With its brisk kidnap industry, dirty politics and robust murder rate, Pakistan’s commercial capital, Karachi, is an unlikely destination for a pair of go-getting financiers fired with the follow-the-money ethos of Wall Street.
Yet the risk-hungry duo have forsaken budding careers in the US financial industry in the belief that somewhere in Pakistan’s ranks of unglamorous, overlooked family businesses lie hidden the seeds of future corporate giants.
“I feel like being a kid in a candy store,” said Shaharyar Ahmed, 32, who started his career as an equity researcher at Goldman Sachs in New York, but who returned to his native Pakistan last year. “So many companies, amazing returns, growing in leaps and bounds — it’s a buyers’ market.”
Private equity is poised to take off in Pakistan, with contrarian investors betting that the country is endowed with far greater potential than news reports chronicling Taliban bombings, the war in Afghanistan or an evolving democracy’s frequent bouts of political drama might imply.
While Pakistan is undoubtedly a high-risk play, investor sentiment has improved following a smooth transition at general elections in May and pledges by the new government of Pakistani Prime Minister Nawaz Sharif, a wealthy business mogul, to tackle a stubborn power crisis that has stifled manufacturing.
Ahmed and his collaborator. Isfandiyar Shaheen, 30, are at the vanguard. As co-managers of Cyan Capital, a US$50 million private equity fund set up by the Dawood Hercules Group, one of Pakistan’s biggest conglomerates, they must prove that they can find finance-starved companies ready for rapid expansion.
Washington, which is slowly mending its roller-coaster relations with Islamabad, seems to share Cyan’s confidence. In June, US development agency USAID pledged US$48 million as seed capital for two private equity funds to invest in small and medium-sized Pakistani businesses.
The Abraaj Group, a Dubai-based emerging markets fund, and Pakistan’s JS Private Equity, which pioneered private equity investments in Pakistan in the late 2000s, have both pledged to match the contribution, the US embassy in Pakistan said.
“There’s a new wave of interest in private equity,” JS Private Equity chairman Ali Jehangir Siddiqui said. “There’s certainly some funds that are stepping up to the plate, we hope that there will be more.”
The new funds all aim to introduce the private equity model that is now familiar in rich and poor countries alike: Groups of investors buy stakes in privately owned companies in return for a say in how they are run.
The theory is that an injection of capital and management savvy will turbo-charge the best of Pakistan’s family-run enterprises, creating jobs for a restive, youthful population and lucrative returns for the funds when they sell their stakes.
“It doesn’t take a rocket scientist to figure out how much you can do in this country, it’s absolutely green,” said Shaheen, a Pakistani who began his career in US investment banking, but now lives in Karachi. “It’s like the Wild West.”
Cyan’s confidence in Pakistan’s prospects stems in part from the sheer size of the market in a country of 180 million people, where many conservatively run companies have shied away from scaling up their businesses into nationwide operations.
Companies listed on the Karachi Stock Exchange have grown their profits by at least 13 percent to 15 percent annually since 2009, according to one market analyst. With 49 percent returns last year, the market was among the world’s top performers.