Contrarian Adding Bets in Mideast

Instability is nothing new in the region, he said. It’s been that way for 5,000 years.

“The Middle East is printing money and it’s used to operating in chaos,” said Mr. Barrack, who runs Colony Capital, which controls $36 billion in private equity and real estate investments around the globe, including more than $200 million in the Arab world. “In fact, it tends to do better in times of chaos than it does in times of peace. Regime changes are just a fact of life.”

While other private equity investors back away from the area, Mr. Barrack said he was “looking hard” at adding to his holdings there, which include hotels in Cairo and Bahrain, and grocery stores in Syria.

“Even though the West is thinking that this is a once-in-a-civilization kind of event, these events have taken place many times,” he said. “The time to buy is when everybody else is running for the hills.”

Indeed, executives at the private equity giant Carlyle Group, which is partly owned by the Abu Dhabi investment firm Mubadala Development and raised a $500 million fund to make Middle East investments in 2009, said they were suspending some of their investment plans in Egypt.

A Carlyle co-founder, David Rubenstein, warned in a speech last month that while his firm was not rushing for the exits, “today isn’t the day to do an investment in Egypt.” He added that “what’s going on in the Middle East isn’t going to end anytime soon.”

In an e-mailed statement on Tuesday, Mr. Rubenstein added, “The events taking place in the Middle East are significant and will take time to resolve themselves, but we are optimistic about the region’s long-term prospects.”

Until recently, the Middle East was a hot area for private equity firms, which raised billions of dollars to invest in the region only to discover that their visions of quick profits were a mirage. Some players, meanwhile, are concerned that with the current unrest stretching from North African nations like Libya, Tunisia and Egypt to Bahrain in the Persian Gulf as well as Yemen and Syria, people will seek opportunities elsewhere.

“Over the last three years or so, we had big investors in the U.S. and Europe starting to get interested in private equity investments in the region,” said Ahmed Youssef, a partner in the Dubai office of the consulting firm Booz Company. “Now my worry is when will this interest come back or whether it will come back at all if people are scared,” he said.

Mr. Barrack, however, has a long history of challenging the conventional wisdom. The grandson of Lebanese immigrants who owned a grocery store in the suburbs of Los Angeles, Mr. Barrack became a billionaire by buying out-of-favor assets.

Those contrarian bets include buying bad loans during the savings and loan crisis as well as betting on Asian assets after the Asian currency crisis of the late 1990s, both of which turned out to be hugely successful investments. The Colony funds that were raised from 1998 to 2003 posted annual returns of more than 20 percent, according to one investor.

Now 63, with a gleaming shaved head and trim figure — his hobbies include polo and surfing — Mr. Barrack, who speaks Arabic, has moved comfortably within the worlds of Middle East royalty and powerful leaders for four decades. When he’s not traveling, he splits his time between a ranch in Santa Barbara with four polo fields, where he raises horses and makes four wines (Wine Spectator rated his 2005 Piocho a 92), and a 6,000-acre oceanfront resort in Sardinia, called Costa Smeralda.

Mr. Barrack landed in Saudi Arabia in the early 1970s, just after finishing law school, when a partner at his law firm learned of his family’s roots. Soon after arriving to work on a deal for a gas liquefaction plant, one of the Saudi operating executives there asked Mr. Barrack if he knew how to play squash, because someone needed a partner.

“So I started playing squash with a local Saudi,” he recalled. “I had no idea who it was, and he asked if I could play the next day for a couple of hours. Turns out this guy was one of the sons of the king. So my first break had nothing to do with gray matter in my head or intellect or knowledge of deals. It was because I was the one person within 1,000 miles who could play squash.”

His connections came in handy again in 1974, when Mr. Barrack was the legal counsel for an agreement involving Lonnie Dunn, a Texan who bought land in Haiti with the goal of building a refinery, the Haitian dictator Jean-Claude Duvalier, and two Saudi princes, for the rights for Saudi oil to be sold to Haiti at a discount.

Article source: http://www.nytimes.com/2011/04/06/business/global/06equity.html?partner=rss&emc=rss