However, to make their bet pay, Ahmed and Shaheen will have to be diplomats as well as financial engineers, persuading patriarchal heads of family-owned businesses to embrace an alien investment concept touted by upstarts half their age. Shaheen and Ahmed spend much of their time explaining how private equity works to owners who might be fearsome entrepreneurs, but innately wary of exposing their clannish, cash-in-hand operations to the young men’s newfangled ideas.
One company head was particularly reticent to share his accounts with Cyan since he feared the young men might be sizing him up for a ransom demand on behalf of kidnappers. At least 70 percent of the companies they visit keep double books — one for the tax man and one containing the true profits.
Given the difficulty many small or medium-sized companies have in securing affordable bank loans in Pakistan, the new crop of funds believe there should be plenty of demand for their finance, provided firms are open-minded enough to listen.
JS Private Equity says predominantly negative perceptions of Pakistan favor investors bold enough to plunge into one of the last, big unexplored frontiers for private equity deals.
“People get a very slanted view of Pakistan internationally, which is why we get this very advantageous risk-reward trade-off,” said Steve Smith, a partner at the fund.
Cyan’s Ahmed left Pakistan at 19 to attend college in the US, where he would join Goldman Sachs and later the International Finance Corporation (IFC), the private-sector arm of the World Bank. He said five years spent sealing IFC private equity deals in Asia and Africa was ideal preparation for his new mission in Pakistan, though not for his first day at work.
In April last year, the airliner ferrying him to Karachi made an emergency landing at the city’s airport. Passengers were marooned on the listing vessel as a slick of leaked jet fuel pooled under the fuselage. They were later rescued unharmed.
“The only walk-away point from the experience was: I want to fix the airline industry,” Ahmed said.
Ahmed would later be robbed at gunpoint outside a restaurant in Karachi’s upscale Clifton District. Undaunted, he and Shaheen have met more than 230 companies from across Pakistan in sectors from food processing and warehousing, to telecom and dairy.
In the next few months, the pair are hoping to make Cyan’s first private equity investment, saying they have 10 to 15 potential deals in their pipeline that could soak up a combined equity capital of more than US$200 million.
Despite the wall of suspicion the pair often face, they believe their promise to instill clear corporate governance will ultimately appeal to owners weary of the feuds that so often weaken family-run empires and unlock higher returns for all.
“It’s not a matter of ‘if,’ it’s a matter of ‘when,’ and I believe that ‘when’ is now,” Shaheen said. “That’s the contrarian bet that we are taking.”