ADIA shows solid return in first time fund review

The Abu Dhabi Investment Authority (ADIA), one of the world's largest sovereign wealth funds, averaged annual returns of 6.5 per cent over the past 20 years, it was revealed yesterday in the fund's first-ever annual review. While those returns could be considered modest, ADIA's strategy of investing Abu Dhabi's excess oil revenues prudently over long periods has led it to put 60 per cent of its assets in indexed investments that are more conservative than active strategies, where a manager seeks greater returns.

The fund puts between 35 and 45 per cent of its assets in developed market stocks; between 10 and 20 per cent in emerging market stocks; and between 10 and 20 per cent in government bonds. Riskier asset classes, such as property, hedge funds and small companies each comprise up to 10 per cent of its portfolio. The fund also keeps up to 10 per cent of its assets in cash, the disclosures showed. ADIA made an average annualised return of 8 per cent over the 30 years ending last December 31.

It has long been suggested the fund used a "multi-manager" approach, farming out its asset management to external managers who invested along the lines dictated by the fund. ADIA revealed for the first time yesterday that 80 per cent of its assets are managed externally. Internally, its expertise lies largely in choosing the external managers best equipped for its goals. "With the publication of this, our first annual review, we aim to enhance understanding of ADIA in key areas such as governance, investment strategy, portfolio structure, our approach to risk and the lifeblood of our organisation, our people," Sheikh Ahmed bin Zayed Al Nahyan, the managing director of ADIA, said in a letter announcing the disclosures.

The fund released the details and relaunched its website to meet disclosure rules under the Santiago Principles, a set of requirements it agreed to in 2008. The principles were crafted as a response to pressure on sovereign funds, which have recently taken a larger and more visible role in global markets, to open up and make clear that their investments had no political dimension. ADIA did not reveal the size of its pool of assets and said it did not plan to.

The fund receives money from excess Government oil revenues and is ready to provide money to the Government in times of need, the disclosures said. "ADIA is required to make available to the Government of Abu Dhabi, as needed, the financial resources to secure and maintain the future welfare of the emirate," its report said. "In practice, such withdrawals have occurred infrequently and usually during periods of extreme or prolonged weakness in commodity prices."

In his letter, Sheikh Ahmed said ADIA had "increased the overall liquidity" in its portfolio starting in 2008 as a response to the global downturn, but "began in 2009 to cautiously lift our exposure to higher-growth markets, which proved effective as the recovery began to take hold". He praised global leaders for their actions in saving the financial system during the downturn and said governments and regulators "now appear committed to reducing the risk of such a crisis occurring again".

Still, Sheikh Ahmed wrote, "considerable uncertainty" remained this year as countries began to think about removing stimulus measures introduced to battle the crisis, and said the upswing "may be less pronounced than usual, at least in the more mature, developed economies". ADIA, the disclosures showed, has a staff of about 1,200 people, 36 per cent of whom are from Asia and 31 per cent of whom are UAE nationals.

It has a series of investment and support departments that make recommendations on investments and managers, according to the disclosures. These departments are overseen by an investment committee that makes decisions on proposals, a common structure for investment funds. When ADIA makes an investment, it "does not seek to manage, or be represented on the boards of, the companies in which we invest", the fund said.

As part of its adherence to the Santiago Principles, ADIA has made clear that it does not take an active role in its investments, but the fund said it did sometimes exercise voting rights conferred on it by its holdings in public companies. "In practice, this means that we usually abstain from exercising our voting rights, except in certain circumstances to protect ADIA's financial interests, or to oppose motions that may be detrimental to shareholders as a body," the disclosures said.

afitch@thenational.ae