Abu Dhabi Fund Improves Rate Of Return

By Camilla Hall in Abu Dhabi

                             Sheikh Hamed Bin Zayed Al Nahyan

The Abu Dhabi Investment Authority (ADIA), one of the world’s largest sovereign wealth funds, last year sharply improved its annualised rate of return measured over a 20-year period.

Adia said in its an annual review published on Tuesday that annualised rates of return increased to 7.6 per cent on the back of global economic growth, compared with 6.5 per cent in 2009, the first year the fund reported 20-year annualised rates of return.

Annualised rates of return over the 30-year period were little changed at 8.1 per cent in 2010 compared with 8.0 per cent the year earlier, the fund said.

Adia, which was set up in 1976 to protect the future wealth of Emiratis, is a long-term investor and acts much like a pension fund. The fund may publish its results over a longer period to reflect the long-term nature of its investments. However, it may also reflect Adia’s preference to shy away from the media spotlight.

The report is the first to be released under Sheikh Hamed bin Zayed Al Nahyan, the managing director and a senior member of Abu Dhabi’s ruling family, who took the helm at Adia last year after the previous managing director died in a glider accident.

“While remaining diversified across all major global markets, Adia continued to benefit during 2010 from its decision a year earlier to tilt exposures in the portfolio towards asset classes and regions able to benefit from better growth prospects,” Sheikh Hamed wrote in the review. “This is an approach that remains in place as we enter 2011.”

Adia, with an estimated $342bn in assets according to Monitor Group, allocates 60 per cent of its total portfolio to externally-managed indexed funds.

Overall, about 80 per cent of the fund’s assets are invested by external fund managers.

“While developed economies continue to demonstrate their ability to innovate and grow, the secular shift in global economic weight from developed to fast-growth emerging economies has accelerated as a result of the financial crisis,” wrote Sheikh Hamed.

“Greater demand from this expanded global marketplace will provide a positive investment climate as it drives new discoveries in life sciences, alternative energy, and other emerging technologies.”

The internal equities department created two new portfolios last year, one for India and one for Latin America, according to the report. The real estate department increased investments in the hospitality sector.

This year the fund revamped one of its main fund management divisions, when Sheikh Mohammed bin Khalifa Al Nahyan, a son of the president of the United Arab Emirates and ruler of Abu Dhabi, moved to head a new indexed fund department.

Two new departments, including indexed funds, have replaced four former departments based on geographical divisions: the US, Europe, the Far East and Emerging Markets.

The restructuring came amid broader government changes to state-linked companies as the oil-rich emirate grapples with a real estate slump and starts to reassess some of its more ambitious development projects.

Adia’s assets are largely allocated to developed equity investments, according to the report.

Allocations to developed equity markets constitute 35 to 45 per cent of the fund’s portfolio while emerging market equities make up 10-20 per cent. Government bonds make up 10-20 per cent of the portfolio at any one time.

The fund is technically able to hold 0 per cent cash while a maximum of 10 per cent is applied, according to the report.

The fund’s geographical allocations include 35 per cent to 50 per cent in North America, 25 to 35 per cent in Europe, 10-20 per cent in developed Asia and 15 to 25 per cent in emerging markets, according to the report.

This article was published in The Financial Times on 13/09/2011