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Khalid Quadir is Chief Executive Officer and Founding Partner of Brummer & Partners (Bangladesh), which manages the Bangladesh-focused Frontier Fund. Khalid makes the case for investing in Bangladesh via private equity and highlights some of the unique challenges to being a first mover in this market. Brummer & Partners AB is a leading hedge fund group based in Sweden with US$15 billion in global assets under management.
How has your career led you to managing the first private equity fund focused exclusively on Bangladesh?
After finishing high school in Bangladesh, which is where I am originally from, I moved to the United States to study at Middlebury College in Vermont. Following graduation, I worked for several Wall Street firms, including CIBC Capital, which is the private equity shop of CIBC, the British merchant bank Hambros Bank and Bank of America. I was also a Fellow at Stanford Business School. While working in the United States, I helped my older brother, Iqbal Quadir, who was involved with setting up Grameenphone—the first mobile telecom company in Bangladesh—in partnership with Grameen Bank and Telenor of Norway. Today, it is the largest mobile operator in the country with nearly 60 million subscribers.
Based in part on my experience with Grameenphone, I started the wireless broadband company bracNet. Around the same time, I was introduced to Patrik Brummer of Brummer & Partners through a common friend. Patrik invested in bracNet in a personal capacity and consequently went to Bangladesh quite a few times. He was very intrigued by what he saw, and that led to the initial idea of forming a partnership to launch a private equity fund.
What makes Bangladesh a compelling story from a private equity perspective?
Over the last 20 years, Bangladesh’s economy has been consistently growing at a rate of between 4% and 6% per year, which is in sharp contrast to other emerging countries, such as Vietnam, which grew 10% to 15% for a few years and then dropped to 1%. Bangladesh is also a large country in terms of population. With approximately 160 million people, it has roughly half the population of the United States, yet is geographically the size of Wisconsin. This population is also extremely young—with a median age of 23—resulting in a huge untapped labor force.
Bangladesh has a large remittance base, receiving approximately over US$14 billion in remittances annually from Bangladeshis who have found employment opportunities in the United States, the Middle East, Southeast Asia, etc. This, coupled with consistent export growth, has helped to keep the country’s current account balance in positive territory, which has been a stabilizing factor. In addition, Bangladesh has ranked extremely well in social indices, perhaps because of the success of local NGOs like Grameen Bank and BRAC. If you look at women’s literacy rates or women’s health, we have done far better than many of our peers, including India.
Our geographic position presents a clear advantage. We are very close to India and China, and the growth taking place in these two countries has definitely had a spillover effect. Several of the major business hubs of the Far East, such as Hong Kong, Singapore, Bangkok and Kuala Lumpur, are only two to three hours from Bangladesh’s capital Dhaka. As our local entrepreneurs travel to these places, the exposure makes a difference. Knowledge has a multiplier effect.
Of course, Bangladesh has many challenges and there is a lot of work to be done—it is essentially a ‘greenfield’ country. However, these solid fundamentals, particularly consistent growth and favorable demographics, compelled us to think about how to methodically invest in Bangladesh. While Brummer & Partners has traditionally been a pure hedge fund business, this Bangladeshi partnership marked the firm’s first entry into private equity.
We have typically seen European asset managers first invest in Central and Eastern Europe and/or Russia and the CIS region when looking to gain greater emerging markets exposure. Why did Brummer & Partners choose to invest in Bangladesh over geographies that are closer to home, and also over larger Asian countries like China and India?
One unique characteristic of Brummer & Partners is that the firm likes to be the first mover. We saw a great opportunity in Bangladesh—and no one was there. India and China are both extremely crowded with a lot of private equity funds competing against one another. In addition, private equity investing requires local knowledge and local people; it cannot be done while sitting in New York or Washington. We have that level of personal contact in Bangladesh.
We launched an initial fund of US$55 million to test the concept, with most of the funding coming from high networth family offices based in Nordic countries as well as Brummer & Partners. We chose to use a hybrid structure that allowed us to invest in both listed and unlisted companies because we wanted to better understand how the capital markets work in Bangladesh as our future exits would likely be through this channel. International Finance Corporation (IFC) expressed interest in investing in our fund but was prohibited from doing so given that our vehicle could make investments on the listed side. So we decided to launch Frontier PE, the first pure Bangladeshi private equity fund. We raised around US$90 million in capital from not only IFC, but similar institutions such as CDC, FMO and Norfund, while 50% of the capital came from commercial investors such as pension funds and high net-worth family offices.
To date, we have made several investments across a number of sectors including in textiles, supermarkets, home appliances, pharmaceuticals and light automotive manufacturing. We are close to deploying all of our capital and hope to have a few exits within the next two years. We have also started fundraising for our second Bangladeshi private equity fund.