NEW YORK/DUBAI (Reuters) - Embattled private equity firm Abraaj has begun freeing large investors from millions of dollars in capital commitments after deciding to suspend its new fund, the Dubai-based asset manager said.

FILE PHOTO - Arif Naqvi, Founder and Group Chief Executive of Abraaj Group attends the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, January 17, 2017. REUTERS/Ruben Sprich

The move underscores the impact on Abraaj’s business from a dispute with four other investors over the use of their money in a separate $1 billion healthcare fund.

“Abraaj has voluntarily released investors from their commitments in Abraaj Private Equity Fund VI, and no longer intends to proceed with this Fund in its current form,” the firm said in a statement to Reuters.

Washington State Investment Board (WSIB) and the Teachers’ Retirement System of Louisiana withdrew a combined $300 million commitment made to the new fund, which was looking to raise $6 billion. The fund had its first close of $3 billion last year.

It is the first time investors have come out with their views about Abraaj’s new fund.

Since the dispute broke earlier this year, Abraaj has shaken up its management, suspended new investment activities and undertaken an independent review of its corporate structure, focusing on governance and control functions.

“In light of our ongoing re-organization, we believe this is a prudent step and is aligned with our longstanding commitment to investors. Abraaj will restart fundraising discussions with investors once the re-organization and strategic review are complete,” Abraaj said.

Chris Phillips, director of institutional relations at WSIB, told Reuters his firm was informed last week by Abraaj that the fund’s $250 million commitment, made in June last year, was being released.

“We were notified before any decision was made to withdraw,” said Phillips.

The Washington State Investment Board manages investments for 17 retirement plans for public employees, teachers, school employees, law enforcement officers, firefighters and judges, it says on its website. It manages nearly $129 billion in assets.

Maurice Coleman, deputy chief investments officer at the Teachers’ Retirement System of Louisiana, which manages more than $19 billion, said the firm had “paused our commitment to Abraaj per their request”.

Abraaj CEO Arif Naqvi, who founded the firm in 2002 and turned it into an emerging market powerhouse with $13.6 billion in assets, has stepped aside from running of the fund, Abraaj Investment Management Ltd. He will remain chief executive of Abraaj Holdings.

The investors in the healthcare fund are still waiting for the report of forensic accountants Ankura Consulting, which is probing how funds were used in the Abraaj Healthcare Fund.

The four investors wanted to know why some of their money had not yet been used for the stated purpose of building hospitals and clinics.

Abraaj had said some capital was not used as quickly as anticipated due to unforeseen political and regulatory developments in several of the markets it operates. After discussion with investors, it had returned the unused capital to all investors in the fund at the end of December 2017.

The high-profile investors include the Bill & Melinda Gates Foundation and World Bank’s arm IFC, sources have told Reuters earlier.

Abraaj said on Feb. 7 that auditor KPMG had reviewed and found all such payments and receipts were verified and unused capital was returned to investors.

The Gates Foundation and IFC have declined to comment on the controversy.