Abu Dhabi’s SWF eyes Chinese growth

03 July 2014   Category: News, Asia, China, Global, Middle East   By Daniel Shane

Abu Dhabi Investment Authority (ADIA), the Persian Gulf sovereign wealth fund (SWF) with an estimated US$773 billion in assets, has hinted that China may play a growing role in its portfolio amid major economic and structural reforms in the country.

In its 2013 annual report, which offers a rare glimpse into ADIA’s investment strategy, the SWF said that emerging markets, including China, were playing a larger role in the global growth cycle than ever before. ADIA currently has a QFII quota of $1 billion.

“China is in the midst of a historic shift in its economic governance that will likely result in a loosening of administrative controls and allow markets to play a larger role in allocating capital,” wrote Hamed Bin Zayed Al Nahyan, managing director, ADIA, in his foreword to the report.

“This approach will allow China to consolidate its economic growth achievements and extend them into an increasingly modern and dynamic economy. The path may not be smooth, but the way is clear,” Sheikh Hamed added.

According to the annual report, ADIA’s 20-year annualised return stood at 7.2% last year, down from the 7.6% annualised return it announced for 2012. It increased its number of employees by around 100 to 1,500 during 2013, the report said.

ADIA, whose mandate is to diversify the United Arab Emirates’ economy by investing its surplus oil revenues, said it was also bullish on alternative assets going into 2014. This asset class, which includes real estate, infrastructure and hedge fund investments, “was able to achieve its overall target in 2013”, ADIA said, “against a mixed backdrop for our various assets”.

The SWF highlighted the performance of its hedge fund portfolio last year as being standout. “In ADIA’s hedge fund portfolio, the very strong performance of 2013 was the result of good balance, and excellent manager selection,” the report continued.

ADIA said it would bolster its infrastructure investments team this year, while improving risk management capabilities. Its current infrastructure investments include two ports in New South Wales, Australia, while it has recently divested its stake in Sydney Airport.

In terms of portfolio make-up last year, ADIA said that developed market equities accounted for between 32% and 42%; emerging market equities between 10% and 20%; small cap equities 1% and 5%; government bonds 10% and 20%; credit 5% and 10%; alternatives 5% and 10%; real estate 5% and 10%; private equity 2% and 8%; infrastructure 1% and 5%.

ADIA said that last year, approximately 75% of its assets were managed by external fund managers.

ADIA is currently the world’s second largest SWF, according to the SWF Institute, behind Norway’s Government Pension Fund – Global, it estimates as having $878 billion in assets.