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Report: Istithmar looks to venture and debt investing for 2008

Istithmar, a Dubai government-owned investment firm, reportedly plans to diversify into venture capital and debt investing as the unavailability of leverage makes larger deals more difficult.

David Jackson

Istithmar’s chief executive David Jackson has said the firm will expand into venture capital, including clean technologies, and debt investing in the first half of next year, according to news agency Reuters.

The strategic change will augment Istithmar’s real estate and private equity investment arms.

It joins an array of opportunistic and established debt investors attempting to profit from the disarray in the global debt markets following the credit crunch this summer.

The problems in the debt markets have led numerous private equity firms to go on the fundraising trail for debt funds. Many investment banks are struggling to refinance bridge loans made at the top of the market to induce their private equity clients to retain them for lucrative underwriting mandates. They have also had to declare large write-downs on unsyndicated leveraged loans.

Prices have fallen again to the lowest levels since the summer in Europe with an average bid price of 96.23, well below par value of 100, according to the latest figures from ratings agency Standard & Poor's LCD.

Data provider Dealogic said there are now $552 billion (€375 billion) in leveraged loans awaiting syndication globally, the bulk in Europe.

The Blackstone Group closed a €400 million ($587.3 million) collateralised loan obligation last week. Lehman Brothers has raised $670 million (€464 million) for a “hung bridge” fund to invest in leveraged buyout-related debt. Lehman’s fund will employ 3.5 times leverage, bringing its total available capital to $3 billion.

Distressed debt investor Oaktree Investment Management and global firm TPG are raising $3 billion and $1 billion, respectively, for hung bridge funds. KKR Financial, the listed investment vehicle of the US buyout firm, is also raising $1 billion from investors for a debt fund building on its own cornerstone investment of $1.5 billion. In Europe, hedge fund GLG is raising $300 million for a similar fund, while large European and US buyout houses generally are raising opportunistic debt funds, according to sources.

Like numerous Middle Eastern firms Istithmar’s investments have been eye-catching. In September it bought US department store Barneys for $924.3 million and acquired a 3 percent stake in GLG in July for an undisclosed sum.

Additional reporting Nicholas Lockley