A Mix of Luck and Skill Helped Investcorp Avoid Bull Market Pitfalls — And Now It’s Putting Money to Work

“There is a lot of cautious capital sitting and waiting,” says Mohammed Alardhi.

Courtesy Photos

Courtesy Photos

When Investcorp executive chairman Mohammed Alardhi and co-CEO Rishi Kapoor met with investors in the Gulf region during a two-week stay earlier this month, many of the attendees asked about potential opportunities in Europe and the U.K., despite the strong headwinds facing the region as a result of war, energy prices, and inflation. The potential bargain-hunting by Gulf investors is good news for the firm, which has been banking on opportunities in Europe, as well as in the U.S., Asia (including India and China), and the Middle East.

During a meeting in New York, Kapoor said that investors in the Gulf, which is Investcorp’s heritage, don’t want to miss out on opportunities that have surfaced as a result of the downturn. “Most sophisticated investors recognize that this is a good opportunity to buy greater quality for better value.”

When asked whether institutional investors have the capacity to make additional investments, Alardhi laughed. “They’re taking all the meetings,” he said. But he added that investors want more clarity around interest rate hikes and the potential severity of any coming recession. “There is a lot of cautious capital sitting and waiting,” said Alardhi, who joined seven years ago with a plan to expand. At the time, the firm still had only about $10 billion in assets. It expects to reach $50 billion this year, he said.

Given some of the troubled investment sectors that have emerged, Investcorp appears well positioned — at least so far. Although it’s been investing in real estate since its founding in the Middle East 40 years ago, the firm doesn’t have a huge footprint in U.S. office or bricks-and-mortar retail. Its portfolio is heavy in thriving multifamily residential. It invested early in the e-commerce trend and exited the hospitality sector five to seven years ago. Hospitality was nixed because it was cyclical and “hard to compete” with in an industry that featured disruptors such as Airbnb, the chairman said. When the pandemic hit, the firm was lucky that it didn’t have big investments in hard-hit cruise lines and hotels.

In real estate, Kapoor, who oversees the firm’s private equity businesses in North America and India, as well as real estate, credit management, absolute returns, and strategic capital, said that Investcorp didn’t anticipate that office space would be transformed by the pandemic. “We looked at cap rates below 4 percent. There’s no margin for error. You are not getting paid for the risk.”

The firm has plenty of liquidity, including $1 billion on its balance sheet and almost $8 billion in client assets.

Kapoor and Alardhi are “cautiously optimistic” as they start to put money to work in a broad range of opportunities, including niche real estate such as student housing in the U.K., which is short 1 million beds. It’s also continuing to invest in warehouses and last-mile logistics as the U.S. and U.K. reconstruct supply chains following the disruptions that have continued to occur since the worst of the pandemic. It’s also interested in real estate that caters to life sciences, another niche sector. The two believe that some of the best opportunities across asset classes will come over the next 12 to 18 months.

Alardhi is still focused on bigger initiatives that he hopes will grow the firm to $100 billion. Those include insurance, a spread business that will benefit from higher rates, infrastructure in the U.S., Europe and Asia, investments focused on the energy transition, and expansion into Japan.

To double in size, Kapoor says it will take a combination of organic and inorganic growth, all of which they’ve done already. “We’ve built platforms ourselves from scratch, like our GP staking biz, we’ve partnered with others to build new platforms like infrastructure, and we’ve bought outright, such as the credit business.”