ADIA gains from high-growth markets

Abu Dhabi Investment Authority seized the opportunity in 2009 to beef up its exposure to high-growth markets to benefit from the dramatic rally in global markets.

After cutting its exposure to stocks in anticipation of the crisis in 2008, the Abu Dhabi Investment Authority (ADIA) piled back into equity markets in 2009 to benefit from last year's dramatic rally in global markets, ADIA's managing director said in an interview published today. "Together, these actions allowed us to beat our own performance expectations and to compare favourably with the published results of other investment institutions," said Sheikh Ahmed bin Zayed, managing director of ADIA, in an interview published today in the German newspaper Handelsblatt. Sheikh Ahmed declined to answer questions concerning ADIA's size, but analysts have long estimated ADIA to be one of the two largest sovereign wealth funds in the world, ranking just behind the Saudi Arabian Monetary Agency. Together with its sister fund, the Abu Dhabi Investment Council, which was seeded with capital from ADIA in 2006, Abu Dhabi's funds are estimated to manage roughly $425bn in assets. ADIA is also one of the world's most secretive and little understand funds, and Sheikh Ahmed's interview is one of only two he has granted. In early 2008, he and other ADIA officials were interviewed by BusinessWeek, with the ensuing article serving as a sort of Rosetta stone for the small community of analysts who keep track of ADIA's various investments. ADIA said the latest interview was part of an effort to dispel the cloud surrounding ADIA by revealing more information. In October, 2008, ADIA led a group of sovereign funds in adopting a set of voluntary principles, including greater levels of public disclosure to dispel the mistrust surrounding such funds. While ADIA is now benefitting from the updraft in financial markets, Sheikh Ahmed warned that substantial risks remained to the global economy, in particular high government deficits, high unemployment, and a growing threat of protectionism. "The world economy is still in a fragile state, and we must not jeopardise its recovery and future economic growth by building barriers to investment and shared success." Sheikh Ahmed said more also needed to be done improve financial regulation. "The financial regulatory architecture has not kept up with the increasingly global and interconnected nature of financial systems - or the pace of innovation," he said. "In the case of some of the more complex financial products developed in recent years the risks have also been too difficult to quantify, leading to unexpected consequences during severe market shocks. This is why ADIA has avoided them." Sheikh Ahmed also addressed the issue of executive compensation, saying that ADIA's bonuses tended to be a smaller percentage of its employees' overall compensation that at other institutions. "Our compensation program has always had a smaller variable component than many investment institutions but a greater emphasis on fixed pay and various other benefits," he said. "This keeps us competitive in attracting world class talent, but also encourages our employees to focus on what's best for ADIA over the long-term rather than looking for ways to boost their short-term personal gains." ADIA will continue to emphasise diversification of its portfolio, Sheikh Ahmed said. ADIA keeps its assets distributed in fixed proportions, or weightings, among 24 classes of assets, Sheikh Ahmed said, with between 40 per cent to 60 per cent in global stocks. It keeps between 15 per cent and 30 per cent invested in bonds and other fixed-income securities, he said. The remainder is divided between property, private equity funds, infrastructure projects and alternative investments. ADIA adjusts these weightings only rarely, Sheikh Ahmed said. "We have the ability in extreme situations to deviate on a temporary basis from our agreed weightings across asset classes in order to further reduce the impact of cyclical downturns," he said. "This approach served us well during the events of the past 18 months." Sheikh Ahmed declined to comment, however, on one of ADIA's biggest investments, its $7.5bn purchase in late 2007 of what then amounted to a 4.9 per cent stake in Citigroup. ADIA has filed a lawsuit against Citigroup seeking $4bn in damages for alleged "fraudulent misrepresentations." Citigroup has said the case has no merit.