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Adia to retain long term goals as it turns forty.

Summary: Assets of the organisation likely to grow despite drop in oil prices

Image Credit: Gulf News Archives Fareed Rahman, Senior Business Reporter

Abu Dhabi: From a small operation using shared office space in 1976, the Abu Dhabi Investment Authority (Adia) has grown to become a financial behemoth managing an amount estimated between $400 billion to $800 billion, making it the biggest sovereign wealth fund (SWF) in the region.

As the fund celebrates its 40th anniversary, Adia's Managing Director Shaikh Hamed Bin Zayed Al Nahyan reflected on the achievements of the institution and said it will navigate current market conditions with a steady hand, never losing the sight of long-term objectives.

"Our long term focus carried through into the way we interacted with the outside word. Adia has always chosen its partners carefully, seeking to build long term relationships based on mutual understanding, respect and a shared interest in our success," he said.

Building on the foundations of its precursor, the Financial Investments Board, Adia's initial strategy was relatively simple and mainly focused on stocks and bonds, with a small number of respected external managers overseen by the internal team.

"Then, as today, Adia's culture was one that emphasised collaboration and respect for the opinions of others. Above all, it involved taking a long-term view toward everything we did," Shaikh Hamed said.

Adia's growth into one of the world's largest financial institutions began with the Emiri decree which created it as an independent entity with a mission to invest for purely economic considerations. This independence from government proved pivotal in Adia's development, as the fund maintained its focus on its mission to secure the financial prosperity of Abu Dhabi.

In the fund's the early days in the 1980s, Adia's 35 equity analysts, a team far larger than those of most investment banks at the time, gave it an edge in finding and investing in equities that were undervalued by the market. It continued to grow, with employee numbers crossing 500 towards the end of the decade.

In 1993, it introduced a formal asset allocation process with a set of benchmarks and guidelines that laid the foundation for the highly diversified portfolio of today. The private equities department was created in 1997 and the following year it began investing in inflation indexed bonds. The mid-2000s saw Adia shift its focus, moving a greater proportion of its assets under management into passive funds that tracked indices such as the S&P 500, avoiding relatively expensive fund manager fees in the process.

In 2007, it moved to its new headquarters on the Abu Dhabi Corniche and the same year saw infrastructure added as an asset class. In 2011 and 2012, Adia created the Indexed Funds, External Equities, Human Resources, Central Dealing and General Services Departments, while also combining real estate and infrastructure operations to create the Real Estate & Infrastructure Department.

Adia now manages global investments across more than two-dozen asset classes and subcategories, including quoted equities, fixed income, real estate, private equity, alternatives and infrastructure.

By the end of 2014, the sovereign wealth fund delivered a 20 year annualised rate of return of 7.4 per cent per annum and a 30 year annualised rate of return of 8.4 per cent per annum.

According to the Las Vegas based Sovereign Wealth Fund Institute (SWFI), Adia's main funding source is from a financial surplus from oil exports. The fund is an independent legal entity with full capacity to act in fulfilling its statutory mandate and objectives, it said.

"The Abu Dhabi Investment Authority's funding sources derives from oil, specifically from the Abu Dhabi National Oil Company and its subsidiaries, which pay a dividend to help fund Adia and its sister fund Abu Dhabi Investment Council," SWFI said about Adia.

Though Adia does not disclose the amount of money it manages, the Sovereign Wealth Fund Institute estimates its assets under management at approximately $770 billion, making it the second biggest SWF in the world after Norway's Government Pension Fund. Credit rating agency Fitch estimates the amount to be about $500 billion.

"The amount that Adia manages gives the emirate the ability to maintain spending levels through economic downturns or other shocks. Adia's assets also remove any doubt about Abu Dhabi's ability to meet is own debt obligations or any contingent liabilities that may arise from government owned companies, the banking sector or other emirates in the UAE federation," said Krisjanis Krustins, Associate Director, Sovereign Group, Fitch Ratings.

When asked about how Fitch sees the growth of Adia in the coming years, the analyst said the sovereign wealth fund's assets will hit a trough of $480 billion in 2016 before rising again to $485 billion in 2017 as investment returns exceed outflows.

"Thereafter, we would expect Adia's assets to continue to grow both due to inflows and asset returns, assuming oil prices rise to our long term assumption of $65 per barrel and spending growth is restrained," Krustins said.

Mathias Angonin, a senior analyst at Moody's Investors Service Middle East Limited, said Adia's assets will likely grow less rapidly than in previous years as the oil price dents Abu Dhabi's fiscal strength.

"If oil prices were to fall below a certain threshold, the authorities may draw down Adia's assets to finance the government deficit and the size of Adia's assets would be reduced."

In recent years, Adia has played an important role in the international sovereign wealth fund community, particularly in relation to the creation of the Santiago Principles, which are designed to improve the understanding of the objectives, structures and governance arrangements of sovereign wealth funds around the globe.

Locally, it has retained a strong commitment to the professional development of its employees. It currently has around 1,700 employees hailing from more than 60 countries, a diverse workforce it cites as one of its key strengths. Adia has acted as an important developer of financially-skilled Emiratis, many of whom have gone on to hold senior positions in other organisations in Abu Dhabi and beyond.

Adia has been led by a number of important people who have contributed to the success of the organisation. His Highness Sheikh Khalifa Bin Zayed Al Nahyan, President of the UAE, has been Adia's Chairman since inception.

Ahmad Khalifa Al Suwaidi, who was the fund's Deputy Chairman, stepped down in 1997 after serving the organisation for 20 years.

Mohammad Habroush Al Suwaidi, who was also the head of Department of Finance, was the first Managing Director holding the post from 1976 to1997.

The late Shaikh Ahmad Bin Zayed Al Nahyan, who died in a glider accident in 2010 in Morocco, was the Managing Director from 1997 until 2010. Shaikh Hamed took over the reins of the authority in 2010.

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Publication:Gulf News (United Arab Emirates)
Geographic Code:7UNIT
Date:Mar 25, 2016
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