ADIA at 40: Jean-Paul Villain the key architect of the fund’s strategy

Mr Villain, who had been poached from BNP Paribas, one of France’s largest banks, in 1981, was soon transformed from a stock picker to a strategic planner.

Jean-Paul Villain is the Director of Strategy for Adia. Delores Johnson / The National

From his sea-facing office on the 32nd floor of the Abu Dhabi Investment Authority (Adia), Jean-Paul Villain, a key architect of the fund’s strategy for the past 30 years, remembers fondly the fun of taking stakes in companies in the 1980s when markets were awash with mispriced stocks.

It was a time when information was relatively scarce, the French Director of Strategy at Adia explains, and Adia’s relatively large in-house team of 30 to 35 equity analysts gave it a competitive edge when it came to picking companies with big upside potential.

Things began to change quickly though, and early big successes in companies such as the information provider Reuters and the gaming company Nintendo became harder to repeat by the end of the 1980s – especially as Adia’s size grew from millions to billions of dollars of assets under management.

“Progressively, the market, the investment banks, the asset managers, started building their own resources,” Mr Villain says. “Even the computer power dramatically increased, so it became much more difficult as markets became more efficient.”

Adia knew it needed to adapt and Mr Villain, who had been poached from BNP Paribas, one of France’s largest banks, in 1981, says he was soon transformed from a stock picker to a strategic planner, making long-term predictions on the fortunes of whole countries and regions rather than individual stocks.

It was a crucial decision that involved specific allocations being made to numerous asset classes over the years, from private equity to hedge funds and infrastructure, resulting in the highly diversified portfolio that Adia has today. It is this balanced approach, coupled with Adia’s willingness to adapt, that Mr Villain credits for the fund’s steady returns in the decades that followed despite many periods of market turbulence.

One of Adia’s earliest coups, he says, was reducing its exposure to Japan when he realised that the country’s weighting in global indexes was too high given Japan’s expected future contribution to global economic growth.

Finding the right strategy remains just as important for Adia today as the world economy slows and central bankers struggle to find the right medicine for anaemic economic growth. Mr Villain raises an eyebrow at the prospect of negative interest rates becoming more fashionable. Europe, which never really recovered from the global financial crisis of 2008, started implementing negative interest rates a year and a half ago and Japan followed suit this year. US rates still remain near zero and it is yet to be seen whether the world’s largest economy will eventually go down the same road.

“There are still a lot of instruments that governments can use, notably on the fiscal side,” Mr Villain says. “What is difficult for everyone is that the world is not going to grow as much as it used to, which is obvious when you start a basic analysis of population and productivity.”

He is under no illusions about the challenges that lie ahead for all investors. The boom years of global economic growth from the 1980s that helped propel the price of stocks and bonds to dizzying heights are unlikely to be repeated anytime soon. And as the world struggles to grow, Adia is as focused as ever on trying to stay one step ahead of the competition.

Over recent years, it has significantly increased its internal headcount in so-called “illiquid” asset classes such as property, infrastructure and private equity, to identify opportunities at an earlier stage and manage its risks more efficiently.

The fund, established to preserve Abu Dhabi’s wealth for future generations, nonetheless has had a good run for its money, soundly beating inflation rates. Over the past 30 years, the fund has posted average US-dollar returns of 8.4 per cent annually, outpacing 2.7 per cent average US inflation over the same period.

Meanwhile, the fund has grown from humble beginnings as a department within the Finance Ministry to an independently-run powerhouse operating from an impressive tower on Abu Dhabi’s seaside promenade where more than 1,700 employees rub shoulders in bustling elevators, conversing in multiple languages and communing for meals on its first-floor cafeteria where international cuisine is prepared. More than any other financial institution in Abu Dhabi, Adia resembles a global investment bank, with tight security at its entrance, elegant interiors and bottles of Yardley’s cologne and talcum powder in its VIP reception restrooms, a far cry from its simple and austere shared offices back in 1976 which had little more than Arabic coffee for visitors.

And it is not just appearances that have evolved, notes Mr Villain. “For me the biggest changes are not the buildings but what is inside the buildings. There has been a fantastic development of the people as well, both nationals and expats.”

Except for a five-year break from 1987 to 1992, when Mr Villain went back to BNP Paribas, the Frenchman has spent his career at Adia, overseeing the formal development and expansion of the fund’s divisions, from its push into private equity in the late 1990s to the bolstering of its in house equities department in 2007.

Today, Mr Villain foresees further diversification for the fund, possibly within existing asset classes. “The important thing to know is what you are buying and why you are buying it and to be clear on your objectives.”

Mr Villain says he does not regret spending much of his life away from his home country. He reminisces fondly of his time spent in Abu Dhabi, recalling the city in its early days when roads were still being built and getting one’s car stuck in the sand on the way to work was common when paved roads were few and far between.

The French historically have not had the same history in the Middle East as the British but Mr Villain says he kept an open mind when he was being headhunted for the job in 1981.

“Like many people here, I said I will come for two years and, of course, you come and you keep renewing your contract,” he smiles.

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