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THE BUY SIDE - Cohen's Daring Mideast Venture

Apax Partners' former chief seeks to promote peace by fostering Palestinian economic development.

AS AN 11-YEAR-OLD IN 1957, Ronald Cohen fled with his family from Egypt to the U.K., part of an exodus of Jewish refugees in the aftermath of the Suez War. Cohen quickly established himself in his adopted country. He obtained degrees from the University of Oxford and Harvard Business School, co-founded the groundbreaking British venture capital and private equity firm Apax Partners and built one of the U.K.'s bigger personal fortunes, reportedly worth some £250 million ($500 million).

Five decades on, Cohen has turned his attention to the long-simmering Arab-Israeli conflict that so marked his youth. The investor and philanthropist is co-founder of the Portland Trust, a British foundation that seeks to promote peace and reconciliation between Israelis and Palestinians by fostering private sector development.

The trust is arranging a loan guarantee program meant to spur lending to Palestinian businesses and is providing technical assistance to microlenders. It also is exploring schemes for building affordable housing in the West Bank and seeking to develop the first Palestinian private sector pension fund to boost savings and stimulate investment. In pursuit of those goals, Cohen has met with senior officials, including Israeli Prime Minister Ehud Olmert, Israeli Foreign Minister Tzipi Livni and Palestinian President Mahmoud Abbas as well as trade and finance ministers in the Arab world.

Cohen is hardly naive about the prospects for peace, but he regards the Israeli and Palestinian business communities as forces for moderation that can play a key role in breaking the political stalemate.

"Because of my long career in private equity, I learned the power of entrepreneurship and market forces and began to understand how these economic drivers could be used to shift the grounds of a conflict," he tells Institutional Investor in a recent interview at the Portland Trust's Tel Aviv office.

Cohen's optimism will be needed if the trust is to make an impact. The organization opened an office in the West Bank city of Ramallah in April 2006, just days after the U.S. and European governments imposed sanctions on the newly elected Hamas government, which has sworn to destroy Israel. The Palestinian economy contracted sharply last year, and the unemployment rate rose to 23.6 percent, double the level of 1999, according to the World Bank.

The sanctions prohibited cooperation with the Hamas government but didn't halt the trust's work, says Samir Hulileh, a former cabinet secretary to the Palestinian Authority who heads Portland Trust's Ramallah office. "It's always necessary to provide assistance to the private sector and to moderate factors in the community," he tells II. "That's where we have stood against the stream."

Recent events have brought new risks -- and new opportunities. Violence erupted in June between Hamas and the Fatah party of President Abbas, causing the collapse of a three-month-old national unity government and an effective schism of the territories, with Hamas in control of an isolated Gaza Strip. But in the West Bank, Abbas has installed a caretaker government led by Prime Minister Salam Fayyad, a respected economist and former International Monetary Fund official, prompting Israel and the West to lift sanctions and restore financial ties. Fayyad has worked closely with the Portland Trust to develop and coordinate projects.

"Providing the Fayyad government is able to prevent attacks on Israel from the West Bank, I believe we should see a period of economic expansion as Arab states, the European Union and others support investment," says Cohen. The trust also could get a boost from the recent appointment of former British prime minister Tony Blair as envoy of the so-called Middle East quartet, which includes the U.S., the EU, Russia and the United Nations. Cohen was one of Blair's biggest supporters in the business community.

As chairman of the U.K. government's Social Investment Task Force and co-founder of Bridges Community Ventures, which invests in small businesses in poor areas, Cohen has long mixed business with social and political activism. He is also an informal adviser to new British Prime Minister Gordon Brown and recently stepped into a budding U.K. tax debate by endorsing calls for partners in buyout firms to pay more income tax.

Today, Cohen divides his time between the Portland Trust, U.K. philanthropy and private investment management. He co-founded the trust in 2003 with Harry Solomon, former chairman and CEO of U.K. food group Hillsdown Holdings.

Cohen's personal background prompted him to launch the trust. He was born in Cairo to a Jewish family with roots in the Syrian trading town of Aleppo. He recalls attending school with Muslims, Christians and Jews, only to watch the cosmopolitan atmosphere shatter in the aftermath of Suez. "I saw a society that was liberal become much more extreme," he says. "I saw posters of the Star of David with snakes going across it saying 'the Zionists,' and so on."

Cohen has developed close connections with Israel. His wife, filmmaker Sharon Harel-Cohen -- with whom he has two teenage children -- is the daughter of the revered commander of the Exodus, the ship that tried to bring Holocaust survivors from Europe to Palestine in 1947 but was turned back by British troops. Cohen led a group of investors who opened a Hard Rock Cafe in 1993 in Tel Aviv, though it closed in 1997 following several Palestinian suicide bombings nearby. And in 1994 he helped establish a $40 million Israeli institutional venture capital fund, one of the first to lure major U.S. investors -- such as the Massachusetts Institute of Technology's endowment fund -- to invest in the country's venture capital industry. "I have a huge commitment to make Israel successful," Cohen says. "But at the same time, I can empathize with the plight of the Palestinians. And it seems to me that on both sides there's a moderate majority that would like an accommodation."

The Portland Trust is unique in having a strong presence on each side of the Israeli-Palestinian conflict: Hulileh runs the Ramallah office, and Eival Gilady, the former head of strategic planning for the Israeli Army who advised former prime minister Ariel Sharon on the Gaza pullout in 2005, oversees operations in Tel Aviv. The foundation is becoming a gateway to the Middle East for Western policymakers, donors and businesspeople, says David Freud, its London-based chief executive officer. "They feel like they're getting a balanced view but also an inside view," notes Freud, a former investment banker at UBS and the great-grandson of psychoanalyst Sigmund Freud.

The trust's loan guarantee scheme began to take shape after a November 2004 meeting in London between Cohen, Brown (then chancellor of the Exchequer) and Fayyad, who was then Palestinian Finance minister. Cohen says Fayyad was enthusiastic about the idea, believing it could jump-start bank lending. Because of the risky environment in the Palestinian territories, banks there lend only about 20 percent of their deposits to the private sector, compared with about 60 percent in neighboring Jordan, economists say.

Under the ten-year program, which is expected to start this fall, the trust is helping arrange for four banks operating in the Palestinian territories to receive about $160 million worth of loan guarantees from outside agencies, including the U.S. government's Overseas Private Investment Corp. Those agencies will guarantee 70 percent of the risk of qualifying loans, ranging in size from $10,000 to $500,000. The guarantees aim to stimulate total lending of $230 million.

In a separate initiative begun in January, the trust has teamed up with Paris-based PlaNet Finance to assist the Palestinian Network for Small and Microfinance, a group of nine microlenders. The three-year, E1.3 million ($1.7 million) program will set up a training center for lenders' staff in Ramallah, develop new products and lobby regulatory authorities to improve the framework for microfinance.

The help is badly needed. According to the World Bank, none of the nine microlenders, which grant loans below $5,000, are self-sustaining, and repayment rates are falling. As a result, the Bank says, they're no longer recruiting new clients and are using up their capital to cover operating costs.

The trust is also exploring a possible loan guarantee scheme meant to expand its reach to microlenders, which currently serve about 30,000 small-scale entrepreneurs, most of them women. "At least 150,000 are not being served because we don't have enough money to meet this demand," says Reem Abboushi, chairwoman of the Palestinian Network.

Although the trust is focusing on the Palestinian territories, it isn't ignoring Israel. The organization has established a $2 million loan guarantee program that will make about $12 million in credit available to small businesses -- Jewish and Arab alike -- in northern Galilee, an area that borders Lebanon and suffered from last year's fighting between the Israeli military and Hezbollah forces in southern Lebanon.

Some Israelis question the power of economics to ease tensions. "The Palestinian economy grew at the fastest pace from 1997 to 2000, and yet it was in the year 2000 that the Palestinians embarked on the intifada," says Uzi Arad, a former foreign policy adviser to conservative Likud party leader Binyamin Netanyahu who has worked with the Portland Trust. "It shows that even when economic incentives are there, they may not suffice if the political mood among the Palestinians still dictates." Nevertheless, Arad says he welcomes the trust's efforts to improve Palestinians' economic opportunities.

Some Palestinians criticize the trust's focus on private sector development, arguing that the organization should pressure Israel to lift movement restrictions on Palestinians and advance a political solution. "What they do is very good, but it will not be more than one block in a building of ten floors," says Naser Abdel-Karim, an economist at Birzeit University in the West Bank and chairman of Faten, a microlender that stands to benefit from the trust's microfinance initiative. The trust "should work on the peace process, and economic and fiscal prosperity will follow. Otherwise, we will always be at the mercy of the Israeli government's behavior," he says.

Critics notwithstanding, Cohen believes he's pursuing the right strategy. "Politics and economics are a double helix where conflict resolution is involved," he says. "There are plenty of people working on the political track. There are relatively few working on the economic track. If I can play a small role in helping to steer it toward a solution, then I don't think there is any better use of my time."



Ronald Cohen


Chairman, the Portland Trust


Co-founded in 2003


A pioneer of the U.K.'s venture capital industry, Cohen regards private sector development as a key to Mideast peace