Even in rich countries with sophisticated medical markets, it can be tricky, given vastly different regulatory regimes and national quirks, for a hospital to go global. Few have done it. Abraaj, however, is betting that Indians, Nigerians and Pakistanis, who in many cases have annual incomes of no more than $1,000, will dip into their savings to pay for an angioplasty or some other necessary, but not necessarily cheap, procedure.
The process is further complicated by cultural differences. The Abraaj-owned hospital chain in Hyderabad, India, for instance, is run by a doctor so revered locally that he approaches “guru” status. Some patients refer to him as a god.
As a business model, that might not scale.
Still, India, Kenya and other less-developed economies share crucial similarities. Government-run hospitals offer cheap or even free care, but they can be extremely overcrowded and grim. With personal incomes rising, Abraaj thinks an emerging middle class of teachers, small-business owners, call-center workers and others will be eager to pay private doctors for better care.
Metropolitan Hospital, located in the rough eastern section of Kenya’s capital, is no Mt. Sinai. The operating theaters are rudimentary. Some rooms, while clean, lack curtains for windows and patients alike. Outside, children play barefoot soccer on a stony field in a suburban sprawl that not long ago displaced the big game that once grazed here.
But in a country where the main afflictions are malaria, meningitis and road accidents, the 150-bed hospital has become a destination for people willing to pay for decent medical attention. And then there is the rapid rise of unfamiliar ailments in poorer countries — diabetes, heart disease and obesity. They, too, are a byproduct of booming economies and rising wages, which enable unhealthier diets.
“Nairobi is a sweet spot for us,” Mr. Mann said. “There is a big population that is growing. You have emerging middle incomes. And there is a massive need for health care.”
He was in town to — he hopes — clinch a deal to buy Metropolitan for the $1 billion health care fund that Abraaj started this year. Mr. Mann is not the only one with this idea: Eight other private equity investors have visited recently, according to Metropolitan’s chief executive.
Abraaj’s fund includes money from the Bill & Melinda Gates Foundation, the medical parts companies Philips Healthcare and Medtronic, as well as other big institutional investors. “There will be some heavy lifting ahead — $1 billion is a lot of money to deploy in these types of markets,” said Maria Kozloski, who oversees private equity investments at the International Finance Corporation, the finance arm of the World Bank, which has also invested in the fund. “The opportunity is compelling, but it’s going to take some time.”
The fund’s size also reflects investors’ appetite for new ways to invest in emerging markets — an asset class that represents one-half of the global economy — after four years of so-so returns in publicly traded markets.
Abraaj is not well known in the usual private equity circles of New York and London. But with $10 billion under management, among the most any private equity firm has invested in these markets, its name is well traveled in the Middle East, South Asia and Africa. For years now, its founder, Arif Naqvi, has been pushing the notion that the best way for long-term investors to benefit from core emerging market themes — growing urbanization and consumption — is through long-term private equity investments that target specific business sectors, as opposed to volatile stock and bond market bets.
The health care fund, which Mr. Naqvi conceived, is a prime example.
Most emerging market investors tend to get their exposure via public stock and bond markets, for instance, by buying shares in Brazilian oil companies or Russian government bonds. But these investments tend to be extremely volatile, shooting up and down in tune with ever shifting risk perceptions in a given country.
Abraaj, by contrast, tries to spot investment ideas less likely to be whipsawed by the headlines. In an interview, Mr. Naqvi cited a recent investment in a Turkish dairy company — made at a time when Turks were protesting against their president, Recep Tayyip Erdogan.
“Turks will drink milk irrespective of who governs them,” Mr. Naqvi said.
Selling beer to thirsty Ethiopians or dairy products to Turks is a fairly simple proposition. And it gets at the core thesis of investing in these markets, which is to take advantage of young and growing populations in rapidly developing economies.
The trick, of course, is to pick the right companies — because there is no quick and easy way to dump a stake in a private company, as you can with a stock on a public exchange.
On the Hunt for Hospitals
It is this fundamental challenge — finding the right company, with the right management team — that has kept emerging-market private equity funds from growing like their larger peers in more developed markets. After all, it can be hard to get a true reading of your business partner in Jakarta, Indonesia, if you are sitting in New York, London or Hong Kong, as is the case with most private equity shops.
Abraaj tries to solve that by being based in Dubai and maintaining 20 regional offices, in places like Cairo and Karachi, Pakistan. Its principals also hail from these markets. In addition to Mr. Naqvi, who is from Pakistan, the firm’s senior partners are citizens of Egypt, Ghana, India, Mexico and Turkey.
The 48-year-old Mr. Mann is typical in this respect. Born in the dicier precincts of Birmingham, England, to parents who had recently immigrated from Pakistan, Mr. Mann went to Cambridge, won a scholarship to the Wharton School and dropped his plan to become a doctor, switching to law and finance.
Today he lives in Dubai and spends at least three weeks a month searching for hospitals and health clinics to buy in places like Ethiopia, Nigeria and Pakistan. He wears the tightfitting suits of a money-center banker, carries a fancy handbag and converses fluently in Urdu and Hindi.
Mr. Mann, who works with a large team of bankers and health professionals in managing the fund, cuts a striking figure in Nairobi, pacing the halls of the two hospitals he’s scouting out — Metropolitan and Nairobi Women’s Hospital. Nairobi Women’s is one of the city’s largest private hospitals, originally founded by an ambitious entrepreneur, Dr. Sam Thenya, to provide care to women experiencing domestic abuse.
With his slick suit and practiced smile, Dr. Thenya seems more a deal maker than a doctor. Both he and Mr. Mann caused a bit of a stir, rushing up and down the hospital’s spartan hallways and bursting into crowded patient rooms.
Mr. Mann brimmed with questions about how to get doctors to see more patients and provide them with more profitable services. In a laboratory where blood samples from patients are analyzed, Mr. Mann asked how long each test took.
Between 15 to 30 minutes, he is told.
“That’s good,” he replied. “You want to get the tests back as quickly as possible.”
Then Mr. Mann poked his head into the room housing the hospital’s single CT scan machine. The room was empty but for a bored-looking attendant hunched over a computer. These machines are a rarity in Kenya, and for hospitals looking to maximize profits, they are crucial pieces of equipment.
Mr. Mann asked the doctor how many scans he performed in a day.
About seven, came the reply.
He shook his head. “You could be making a lot more money out of that machine,” Mr. Mann said. “You could be doing as many as 15 to 20 patients a day. A machine like this can really drive profitability.”
‘Not Mother Teresa Stuff’
Mr. Naqvi, in marketing Abraaj’s health fund, has insisted that its emphasis will be to have a positive social impact first and make money second. He refers to this mix of capitalism and social good — a bit majestically — as “partnership capital.” Nevertheless, both he and Mr. Mann know that any vision of a benevolent health conglomerate will not materialize unless they can find hospitals that are financially sound.
Perhaps the greatest tension for Abraaj to resolve is pricing. Few patients in India or Africa have health insurance. In Kenya, 67 percent of health expenditures are paid out of pocket. And in India — the fund’s central focus — that number is 60 percent.
This makes for extremely price-sensitive patients.
For example, the Hyderabad hospital chain that Abraaj recently bought, Care, has a business model that relies on patients paying $3,000 for a heart bypass operation, even though average income per capita in India is half that amount. (In the United States, similar treatment might cost $40,000, although insurance would help.)
“Look, this is not Mother Teresa stuff — we have a responsibility to our investors,” Mr. Mann said. “But in this case, I really think that you can do good and make money.”
That has been a driving philosophy behind Care Hospitals, India’s fifth-largest private hospital group. Founded by a team of Hyderabad cardiologists in the 1990s, Care has been a darling of private equity investors for the better part of 10 years. Last year, when Care again hit the market, Abraaj had to beat out a scrum of competing institutions.
The Guru Will See You Now
When Mr. Naqvi hired Mr. Mann to head the new fund in 2014, their first challenge was to find a country, and a hospital, that would serve as the driving force for the project. Because of India’s 200-million-person middle class and its wealth of doctors and surgeons trained to world standards, it was a logical place to start.
Mr. Mann had long been aware of the niche that Care had carved out for itself, with its 16 hospitals serving a wide area in and around Hyderabad and other parts of central India. Mr. Mann knew, too, that to make the dream work across countries and continents, it would not be enough to swoop into Nigeria, buy the best hospital he could find and hope for the best.
Training Nigerians and Kenyans how to use a CT scan or conduct a routine heart operation would be critical. If he could tap into the programs for professional advancement that Care had already built, he theorized, perhaps he could train his new doctors at a fraction of the cost it would take to send them to Europe or the United States.
These doctors would then return to their home countries grasping not only the latest medical techniques but how to get people to pay for them — a sensitive dynamic that has been at the root of Care’s success.
Leading Care, spiritually as well as medically, is its popular chairman, Dr. B. Soma Raju, a 69-year-old cardiologist. He made his name developing an affordable coronary stent many years back when they cost too much to import to India.
A quiet, stooped man, Dr. Soma Raju mumbles, making it hard for his fellow doctors and patients to hear him. But they hang on his every word, and he has been known to treat as many as 100 patients in a day.
For a number of years now, the vast majority of those who come to see him have illnesses related to diabetes. Close to 70 million people in India — second only to China — have been found to have the disease as a growing number of Indians lead more sedentary lives and eat more processed foods.
The result has been a sharp increase in what medical experts call truncal obesity, where fat is stored mainly around the waist. That can lead directly to heart problems, kidney disease and loss of sleep.
One day this month, Dr. Soma Raju saw a patient who fit the pattern perfectly. The owner of a village rice mill, the 61-year-old man had traveled far to be seen by the doctor.
Days without sleep had inflamed his eyes. In a ragged voice, he described what ailed him. And then there was his weight: 262 pounds, far too heavy for a man standing 5 feet 5 inches tall, the nation’s average.
“He has serious sleep apnea, blood sugar is increasing, and blood pressure is up,” Dr. Soma Raju explained. He advised the patient to exercise more, but his condition was so grave that the doctor also felt that weight-reduction surgery was needed.
In the large waiting room outside his examination chamber, every chair was filled. And as was the case with the owner of the rice mill, many patients had traveled more than 400 miles to see the doctor — not only from tiny rural villages but also metropolises like Mumbai.
India is a country where a doctor’s counsel is often viewed as sacred. One patient, a 77-year-old retired farmer who also had diabetes, said that he “believed in Dr. Soma Raju like a god.” Upon leaving the office, he bowed deeply before him.
All of which is good for business at Care. The hospital’s dialysis wards are filled to capacity, and many of the doctor’s patients — like the rice mill owner, for example — are paying full price for the services they receive, reflecting the growing wealth of India’s middle classes and the dearth of government spending on health care.
Dr. Soma Raju is as fluent in the language of finance as that of medicine. And such jargon as Ebitda (earnings before interest, taxes, depreciation and amortization — or, more simply, cash), profit margins and six sigma (a management style popularized by the former General Electric chief executive Jack Welch) rolls easily off his and his fellow doctors’ tongues.
When making his rounds in Hyderabad, Mr. Mann often asks that Care doctors take him to surrounding villages, where the hospital is opening small outposts. While Care is based largely in cities, about 70 percent of India’s 1.3 billion people live in rural areas.
Recently he traveled to Kandlakoya, a hamlet of about 2,000 people an hour’s drive from the city, where cows jostle with cars for right of passage. The bare-bones doctor’s office, a single room, was stuffed with a desk, a patient’s chair and a hospital bed, and a crowd of elderly men patiently waited their turns.
Presiding was a garrulous, 73-year-old doctor, who briefed Mr. Mann on the day’s afflictions: water contamination, anemia and most of all, complications from diabetes.
Are they paying for their visits, Mr. Mann asked?
“Oh, yes, sir,” replied the doctor, G. S. N. Raju, pointing to his scribbled notations in a battered ledger. “They come to me and tell me their problems.”
Then, to Mr. Mann’s surprise, the doctor grabbed him in a tight embrace. A more buttoned-up deal maker might have stiffened, but Mr. Mann pulled the small man close.
“Profitable, impactful and outreaching,” he proclaimed, a smile breaking out on his face. “This is the essence of partnership capital.”
It was good P.R., too — an Abraaj public relations executive was quick to capture the moment on his camera. He also suggested that the ebullient doctor be flown to Dubai for the firm’s next investor conference.
Profit vs. Poverty
While the Abraaj model seems to be working in India, it is not clear yet whether the strategy will immediately transfer to poorer countries in Africa where people may have more trouble paying for their visits.
One way to start to understand why Care has so many willing customers is to visit the alternative — an Indian government-run hospital. This can require a steely stomach, particularly in urban areas, where the population is outracing already overburdened facilities.
At one children’s hospital in Hyderabad, large crowds of parents, having made the trek from distant villages, squatted recently in a concrete lot in the rain. This was essentially the waiting room. As families endured sometimes dayslong waits for their turns with a doctor, their children relieved themselves in the street.
These types of conditions replicate themselves at government hospitals across India. Treatment is more or less free, but the facilities are Dickensian in comparison with the Care hospital — teeming emergency rooms, with hundreds of parents and children pushing for a single doctor’s attention.
The Indian government spends only about 1 percent of its gross domestic product on health care, and it shows. All of this helps explain why people who can afford to do so pay for hospitals like Care.
Similar scenes play out in Kenyan public hospitals. After his meetings at the private health facilities in Nairobi wrapped up, Mr. Mann dropped in at the Mama Lucy Kibaki Hospital.
Named after a former first lady of Kenya and built with help from the Chinese government, it is in a rundown eastern suburb of Nairobi. The emergency ward of its pediatric wing was a swarm of crying infants and sickly children, packed closely together, noses dribbling and wounds open, with few doctors in sight. “Did you see all those with contagious diseases squeezed into that room?” Mr. Mann muttered.
He said he tried to stop in at state-run facilities in the countries he visited to get a better sense of how public health care was administered — to size up the competition.
Like all ambitious private equity figures, Mr. Mann finds the glory of a billion-dollar deal — and the potential for a financial reward at the end — an obvious motivation. But a large part of his job, he says, lies in making the moral case for providing high-quality health care to lower- and middle-income patients in these countries. “How often do you get an opportunity to do something like this — I mean, to really make a difference?” he said.
He is also feeling the pressure to make this grand project work. Bill Gates is watching, and so are the World Bank (via its financing arm) and, not least, Mr. Naqvi, the fund’s philosophical father, to whom Mr. Mann writes detailed mission notes describing each step taken.
“Of course I am nervous,” Mr. Mann said. “I think about this 24/7.”
To some observers, the two ideas he most frequently deploys in explaining the goals of the Abraaj fund — cash flow and care — are more contradictory than symbiotic. Among those people was Karivki Ngure, a medical student doing his rotation at Mama Lucy Kibaki Hospital.
“All these things are good on paper,” he said, after running into Mr. Mann and hearing what Abraaj was doing in Kenya. “But if you come to this facility here, you will realize that there is a real need at this level,” he said, referring to the impoverished patients. “So what do you do about them?”
It was a fair point, and Mr. Mann knew it. He knew, too, that in terms of what Abraaj was hoping to do, without the cash flow there would be no care to give.
“We can’t go to that part of the population because the business is just not sustainable,” he responded.
The delegation from Abraaj finished the day at the office of the hospital’s head, Musa Mohammed, a child of refugees from the war-torn South Sudan. Mr. Mohammed asked Mr. Mann pointed questions about the prices his privately run Kenyan hospitals were charging patients.
Mr. Mohammed, who was raised in the Nairobi neighborhood of Kibera, considered Africa’s largest slum, argued forcefully that the government needed to step in more aggressively to cap health care prices. “I know the private sector has to make a profit,” he said, choosing his words carefully. “But how much profit? But I guess this is why it is called a free-market economy.”
Mr. Mann did not agree that private hospitals in Kenya, not least the ones he was going to buy, were gouging their customers. But he held his tongue: Mr. Mohammed’s moral authority was daunting. Mr. Mann would try to win him over instead. So he asked the hospital chief if he could come by for a visit the next time he was in Nairobi.
An earlier version of this article referred incorrectly to a medical parts company that has invested in the Abraaj Group’s $1 billion health care fund. It is Medtronic, not Medtronics.