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North America key area for investments

Only 15% to 25% held in emerging markets

Gulf News

Abu Dhabi: Abu Dhabi Investment Authority (Adia) said in its annual review yesterday that 35 to 45 per cent of its portfolio is currently invested in developed equities while 10 to 20 per cent is in emerging market stocks and up to 20 per cent in government bonds.

The sovereign wealth fund said 35 to 50 per cent of its investments are located in North America, followed by Europe and Asia, while only 15 to 25 per cent is held in emerging markets.

"In total, around 80 per cent of our assets is managed externally in areas including equities, fixed income, foreign exchange, money markets, real estate, private equities and alternative investments. We engage managers across the risk spectrum," said Adia in the annual review.

Adia said its alpha (absolute returns)-seeking managers operate in a wide variety of different geographies and asset classes and employ a comprehensive array of strategies to meet their objectives.

"Our goal is to ensure that we employ skilful managers, operating across structurally attractive geographies and asset classes, who combine to produce steady, incremental alpha streams over the medium to long term," it added.

Specialised skills

The specialised skills of these external managers are of particular benefit in more operationally difficult, complex and liquidity-challenged geographies, said Adia, adding that it has developed systems and processes over many years that are intended to ensure that external managers remain compliant with their agreed investment and operating parameters.

"We produce investment reports that cover portfolio positions, investment style and risk exposures. The use of external managers also ensures that Adia retains up-to-date knowledge and is kept abreast of developments across the investment industry," it added. Adia invests funds and oil revenue surpluses on behalf of the Abu Dhabi government.

Adia said it anticipates global economic growth to remain hesitant in the near term, as governments in major developed markets begin the tricky task of cutting potentially burdensome debt levels without undermining growth. "However, as we enter the post-recovery phase, we remain confident that returns from equities will gradually revert close to their long-term historical average between six per cent to eight per cent," it added.

"Assuming bond yields remain low — and in the absence of major negative macro events — equities appear relatively attractive even when using conservative assumptions with regard to the equity-risk premium," the sovereign wealth fund added.

The fund's assets range from Citigroup bonds to a stake in London's Gatwick Airport.

Adia restructured its external equities department, separating indexed funds from active funds as part of a more focused strategy, it said last month.

"Exposure to absolute market, credit and liquidity risk, as well as systemic risks, is managed primarily through the diversification, by asset class and geography, of the ‘neutral benchmark' and the associated asset allocation decisions. The individual components of the ‘neutral benchmark' are termed ‘Pools' which can be further split into passive and active," said Adia.

"Relative risk is managed by the respective investment departments against their assigned benchmark and approved pool investment guidelines," it added.

While the Abu Dhabi fund does not disclose its net worth, the Sovereign Wealth Fund Institute estimated its value at $627 billion (Dh2.3 trillion) making it the largest sovereign wealth fund in the world.

In numbers

  • 80%: Share of Adia's assets managed by external fund managers
  • 60%: Share of Adia's assets investedin index-replicating strategies
  • 1,200: Total number of Adia employees
  • 31%: Share of Emiratis in Adia's workforce
  • 40: Number of nationalities Adia employs
  • 7.6%: 20-year annualised return on Adia portfolios