Adia well positioned to capture future investment opportunities after strong 2021 returns

Abu Dhabi's sovereign wealth fund's private equity department invested more capital than ever before, with direct investments accounting for 58% of the unit's overall allocation last year

The Abu Dhabi Investment Authority holds investments — directly or indirectly — across various asset classes. Stephen Lock / The National

Despite the uncertainty facing the global economy and the rapid speed of change in financial markets last year, the Abu Dhabi Investment Authority (Adia) was well placed to capitalise on market conditions in 2021 and is harnessing technology and data analytics across the organisation as it charts its future investment opportunities.

As the narrative globally focused on rising inflation and the effects on the global economy last year, Adia — one of the world's biggest sovereign wealth funds — sought out opportunities in regions and subregions with high potential over the long term as it continued to build out its direct exposure to private markets, it said on Thursday in its 2021 annual report.

It also benefitted from positioning equity portfolios to capitalise on emerging trends, including opportunities arising from differing government responses to the Covid-19 pandemic.

“Overall, Adia was well positioned to benefit from market conditions in 2021, delivering strong returns both in absolute and relative terms while remaining aligned with its approved risk and liquidity profile,” said Sheikh Hamed bin Zayed, Adia's managing director.

Adia continued to focus on simplifying governance structures and put in place changes to both internal processes and departmental structure to boost internal organisational agility, he said.

“These steps have centralised numerous middle and back office activities to unlock efficiency gains while increasing visibility of liquidity requirements and cash management activities,” Sheikh Hamed said.

“Ultimately, this has enhanced Adia’s ability to consider investment strategy and risk appetite at the total portfolio level.”

The sovereign wealth fund's 20-year and 30-year annualised rates of return, on a point-to-point basis, were 7.3 per cent and 7.3 per cent, respectively, at the end of December 2021, compared with 6 per cent and 7.2 per cent in 2020.

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Adia attributed the increases to “a combination of both the years falling out of the calculations, as well as performance in 2021, underlining its preference for focusing on long-term trends”.

Adia, which does not disclose its assets, invests on behalf of the Abu Dhabi government. It is the world's third-biggest sovereign fund after similar entities in Norway and China, according to the Sovereign Wealth Fund Institute.

Adia makes direct and indirect investments across asset classes such as equities, fixed income, infrastructure, private equity and property.

The fund's private equity department invested more capital than ever before, with direct investments accounting for 58 per cent of the department's overall allocation in 2021. It was 55 per cent more than in 2020.

In total, the department completed 40 direct investments in 2021, up from 25 in the previous year, including 12 co-investments in early stage companies, alongside its venture capital partners.

The Asia-Pacific region accounted for about 20 per cent of total funds invested by the private equity department.

Adia completed its first investment in Vietnam, as well as its first transactions in Indonesia during 2021, leading GoTo Group’s fund-raising round with a $400 million investment.

It also invested alongside the newly formed Indonesia Investment Authority in the initial public offering of telecom towers company Mitratel.

The global property sector rebounded sharply in 2021, with Adia's real estate division capitalising on the improving market conditions. It invested in both public and private markets.

The outlook for real estate investment remains attractive and opportunities exist across key themes, particularly those that are well-supported by shifting consumer demand patterns, regulations and structural forces, with activity levels expected to remain high in 2022 and beyond, Adia said.

The fund's infrastructure division invested more capital in 2021 than in any previous year, across a wide range of both private and listed assets, with its four core sub-sectors of transport, energy, utilities and digital infrastructure delivering a strong performance last year.

The division increased its stake in Australia’s WestConnex, finalised an investment in FiberCop — a joint venture that provides fibre-optic connectivity throughout Italy — and increased its exposure to India’s Jio Digital Fiber.

It also invested in US-based Sempra Infrastructure Partners (SIP), which aims to bring about the energy transition by building and operating new energy infrastructure.

Climate change considerations were integrated into Adia's investment process in 2018 and the fund continues to assess climate-related risks within asset classes as it looks for opportunities associated with the energy transition, it said.

“The global pandemic has had a significant impact on the way that people live and work, and this is likely to have a flow-on effect for many industries,” Sheikh Hamed said.

“Longer term, there are a number of other important themes that will profoundly reshape the investing landscape over time.

“These include the rise of data-driven investing, which is providing new ways of identifying opportunities for outperformance, while also reducing the time available to capitalise on them.

“As a long-term investor, Adia has always sought to remain at the vanguard of important developments in the business of investing, and this is no different.”

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The fund has pursued a systematic approach to identifying and capturing opportunities by building capabilities in key areas that include artificial intelligence, data and analytics while instilling a more science-driven environment throughout the organisation, it said.

Adia said it reorganised a number of departments in 2021 with two new sections. One allows for more efficient, flexible trading and rebalancing of the fund while another creates a single point of visibility for the total portfolio, as well as efficient investment support activities across the organisation.

In parallel, Adia also said it made substantial progress in simplifying systems and processes to increase its ability to act quickly when it identifies fast-moving opportunities.

The fund said it had reallocated resources to areas of future growth, with significant recruitment activity in various parts of the organisation, such as in private markets and systematic quantitative investing, which will continue in 2022.

Adia said it will continue to grow the capabilities of its Research and Development Lab and Factory, which has specialists with backgrounds in AI, machine learning, Big Data, high-performance computing and applied mathematics.

The team has already generated a range of new investment ideas and its work is also contributing to the evolution of fund’s overall investment process.

“We believe that harnessing the power of data and high-performance computing to inform decision-making will play an increasingly important role, both in investment and support activities. Multiple departments are actively recruiting for specialists in these and related fields,” it said.

The fund is also developing in-house talent through partnerships with local and international academic institutions and research organisations, including the creation of programmes in data and computational sciences, as well as applied mathematics.

It plans to broaden its collaboration with researchers, practitioners and academics.

“While 2021 was another strong year for returns at Adia, it will also be remembered for the growing momentum behind the implementation of Adia’s vision for the future,” Sheikh Hamed said.

“We are enthusiastic about the opportunities that lie ahead, and in Adia's ability both to identify and capture them.”