The world’s largest SWF, the Abu Dhabi Investment Authority (ADIA), added a number of new portfolios to equities and fixed income and reorganised its internal passive equities team in 2010, according to its second ever annual report, in which it also predicted a positive outlook for equities.
ADIA’s portfolio is managed across “more than two dozen asset classes”. About 80 per cent are managed externally, and about 60 per cent are managed in index-replicating strategies.
At the end of December 2010, ADIA claims its 30-year return was 8.1 per cent, and its 20-year return was 7.6 per cent.
The annual review states that it tilted the portfolio towards asset classes and regions able to benefit from better growth prospects, and these tilts remain in place as it enters 201
In this second annual review, ADIA has added more information, including market overviews for each of the asset classes, and key developments within the investing departments.
During the year the internal equities department, which manages about 40 per cent of the asset class, created two new portfolios – active Latin America and active India – and began building those teams.
Within internal equities the passive mandates were restructured under a single team leader, with portfolio managers and analysts rotating across regional mandates as part of an effort to share ideas.
The fund’s outlook for equities is “reasonably positive”, stating that it remains “confident that returns will gradually revert close to their long-term historical average between 6 and 8 per cent…equities appear relatively attractive when using conservative assumptions with regard to the equity-risk premium”.
Within fixed income and treasury, exposures have been expanded to portable alpha strategies as a means of diversifying from traditional active approaches, and it has also centralised risk management across the department.
The key development in the alternatives department was the funding of emerging managed futures managers with a view to migrating them across to the main managed funds portfolio if they meet performance expectations. These new managers sit within a small portfolio launched in 2009, which has the purpose of identifying strong performers of the future.
The year saw an increase of 40 per cent in real estate deals, with more than $550 billion of assets traded during the year. But this is well below the $1.7 trillion peak of 2007, the report states.
The private equity department is divided into four divisions: primary funds, secondary funds, distressed funds, and co-investments. It began investing in private equity in 1989.
The key development in that department was the appointment of a chief investment officer, private equities, James Kester, who reports to the executive director of private equities, Hareb Al Darmaki.
During the year, Hamed bin Zayed Al Nehayan became the managing director, following the untimely death of Sheikh Ahmed bin Zayed Al Nehayan. (See article here)
ADIA also complied with the International Financial Reporting Standards in the preparation of its financial statements.
ADIA does not invest in the UAE, except in instances where such investments may constitute part of an index, and it does have ranges around its country weightings.
For North America the range is 35 to 50 per cent, Europe 25 to 35 per cent, developed Asia 10 to 20 per cent and emerging markets 15 to 25 per cent.
It has six investment departments – equities, infrastructure, real estate, fixed income and treasury, private equities and alternatives – that report to the investment committee, which in turn reports to the managing director. It employs more than 1200 people, from more than 40 countries, 93 of which are CFAs.
ADIA receives funds from the Abu Dhabi Government that are surplus to its budgetary requirements, as well as funds from the Abu Dhabi National Oil Company. It is required to make financial resources available to the Government as needed to secure and maintain the future welfare of the Emirate.
According to its annual report, in practice this is infrequent, and usually occurs during periods of extreme or prolonged weakness in commodity prices. The portfolio is managed in such a way that there are sufficient levels of short-term liquidity to meet these funding requests.
ADIA Asset Allocation Ranges 2010
| Asset class | minimum % | maximum % |
| Developed market equities | 35 | 45 |
| Emerging market equities | 10 | 20 |
| Samll cap equities | 1 | 5 |
| Government bonds | 10 | 20 |
| Credit | 5 | 10 |
| Alternative* | 5 | 10 |
| Real estate | 5 | 10 |
| Private equity | 2 | 8 |
| Infrastructure | 1 | 5 |
| Cash | 0 | 10 |
*Alternatives includes hedge funds and managed futures
