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For most American investors, this wouldn’t seem the right time to put money into new toll roads in Turkmenistan or a desalinization plant in Lebanon. But these are the types of deals a quiet private equity firm in downtown Washington, D.C., wants to do. The firm, run by a one-time prime minister of Pakistan, is on the verge of launching an unusual fund to invest in infrastructure projects — such as power plants and telecommunications networks — in what the firm describes as “the Islamic world.” The IDB Infrastructure Fund, for which the firm expects to raise $1 billion in equity, is believed to be the first private investment vehicle dedicated to private-sector infrastructure projects in countries with major Muslim populations. At a time when the United States appears committed to protracted combat in Afghanistan and willing to provoke Islamic fundamentalists beyond that country, the venture seems “quite aggressive,” as one D.C. private equity lawyer puts it. But executives at Emerging Markets Partnership (EMP) say the Sept. 11 attacks and the United States’ response have not affected their plans. Arnold Weiss, the firm’s general counsel and a veteran of the Inter-American Development Bank, says he hopes to “close” on the first round of investment, totaling about $750 million, within weeks. J. Speed Carroll, the firm’s deputy general counsel and a former managing partner of Cleary, Gottlieb, Steen & Hamilton, hastens to point out that the fund is not designed to “invest in the enemies of the United States.” The lead sponsor of the fund is the Islamic Development Bank, based in Jeddah, Saudi Arabia. IDB has committed $250 million, according to public bank documents. Only private-sector projects in the bank’s 53 member countries, which finance the bank, will be eligible for investment from the new fund. The fund’s effective target area extends from North Africa to the Middle East and Central Asia into the Asian Pacific. EMP could face scrutiny from the Treasury and State departments because several of IDB’s member countries are covered by U.S. sanctions. Iran, Iraq, Libya, and Sudan are members; Iran and Libya are major contributors to the bank, according to the IDB Web site. U.S. laws generally prevent American citizens from investing in these countries. But EMP executives say they’ve structured the fund to comply with the sanctions laws. The firm set up a subsidiary in Bahrain to manage the fund and installed two non-U.S. citizens as its managing partners. These professionals handle fund-raising efforts, Weiss says, and EMP has not pitched the fund to any U.S. investors. EMP retained London’s Norton Rose to work on setting up the fund; London’s Clifford Chance represents the fund itself. IDB is a longtime Clifford Chance client, Carroll says. Carroll downplays the sanctions issue. “I don’t think it’s a huge problem because those laws don’t prevent a British citizen or a Pakistani citizen from doing a project in Libya, if there were such a project,” he says. Mumtaz Khan and Michael Lee, EMP’s managing directors in Bahrain, are from Pakistan and Britain, respectively. NOT A CHARITY As a practical matter, Weiss notes, the IDB fund is unlikely to invest in those countries in the foreseeable future. “This is not an eleemosynary institution,” Weiss says. “We’re looking for investments in which profits can be made. This automatically excludes countries like Libya which have nationalized everything.” Weiss and Carroll say they’ve received no inquiries from State or Treasury. Officials at those departments did not return calls seeking comment. Some lawyers familiar with the U.S. sanctions regime say that despite the fund’s careful structure, they’d still be nervous. “You’d have to be ultra-careful that there are ways to make sure there’s no terrorist connection” with any of the investments or investors, says Amanda DuBusk, a former assistant secretary for export enforcement at the Commerce Department who is now a partner at Miller & Chevalier. Emerging Markets Partnership is run by Moeen Qureshi, a former senior vice president for operations at the World Bank who served briefly as prime minister of Pakistan in 1993. Qureshi founded the investment firm in late 1992 with Donald Roth, now EMP’s managing partner. Roth is an ex-treasurer of the World Bank and former chairman and CEO of Merrill Lynch Europe Ltd. The firm, which has about $5 billion under management, is closely linked to U.S. insurance giant American International Group Inc. AIG owns roughly 25 percent to 35 percent of EMP, Weiss confirms, and the insurance company is a major investor in the five infrastructure funds that EMP currently manages. Qureshi serves on the company’s international advisory board. Other investors in EMP’s existing funds — which target projects in Asia, Latin America, Europe, and Africa — include General Electric Capital Corporation; Edison Capital; MetLife Inc.; and the University of California. But EMP hasn’t asked these investors to participate in the IDB fund. “We’re aware of what [EMP has] been developing for some time,” says a source within AIG who is familiar with the new fund. But because the fund is designed for Islamic institutions, this person says, “There’s never been a role contemplated for AIG.” Larry Mellenger, AIG’s global head of private equity, declines to comment. LONG-TERM PROJECT Weiss and Carroll relate that EMP first began working on the fund about four years ago after being approached by IBD. Progress has been slow, Weiss says, because of the complexity of the deal and its novelty in the region. “This was [IBD's] initiative to participate in the private sector for the first time, according to Islamic principles,” Carroll says. The fund is designed to encourage the use of finance techniques that are consistent with Islamic law, which generally forbids charging interest, he adds. The Dar Al-Maal Al-Islami Trust, chaired by Saudi Arabia’s Prince Mohamed Al Faisal Al Saud, has agreed to contribute $200 million, IDB documents show. Weiss says EMP has also received commitments “in the $100 million range” from funds in Bahrain and Malaysia. Weiss says that investors have pledged enough cash and other financing for the fund to close its first round. But one investor in Brunei, who Weiss says has committed $300 million, has not yet inked the deal. “We need subscription documents from Brunei,” Weiss says. “We haven’t been able to get the sultan’s attention.” Another, perhaps more serious challenge Weiss and his colleagues face is actually making money on infrastructure deals in the region. “The trick is once you make the investment, you have to nurture it, and then you have to find a way to sell it,” Weiss says. “So part of the aim is to help create a capital market in some of these countries. Some have nascent ones, but they’re very shallow.” As for terrorism and the ire of Islamic fundamentalists, Carroll remains undaunted. “We thought about the effects of these terrible events of the past few weeks on all our businesses,” he says. “But I don’t think we see any reason to call off our participation in these funds. “If there’s a worthwhile project there — putting pure water in a country that doesn’t have it, or ports for imports and exports — there’s no reason for us not to do it.”

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