Adia reaffirms commitment to emerging markets

The Abu Dhabi Investment Authority has affirmed its commitment to emerging markets as it reported a decline in its investment returns measured over 20 years.

In its review of 2013, published yesterday morning, Adia reported that its global investments generated returns of 7.2 per cent at the end of last year, compared with 7.6 per cent in 2012, measured in US dollars over a period of 20 years. Returns over 30 years averaged 8.3 per cent in 2013, compared with 8.2 per cent in 2012.

Adia, one of the largest sovereign wealth funds in the world, does not disclose the annual performance of its investments. The Sovereign Wealth Fund Institute estimates that Adia’s assets are worth approximately US$773 billion.

The fund noted that while equities in Europe, the US and Japan had performed well during 2013, bond markets and emerging markets had suffered because of uncertainty over the future of US bond purchases.

Adia allocated additional funds to its core European, Emerging Europe and South Africa, and Equity Opportunities portfolios in 2013.

Its internal equities team – responsible for direct equity investments - added analyts and portfolio managers to its Japanese, Latin American, Regional Investment Holdings and Equity Opportunities teams, and plans to increase hires for its Asia Ex Japan portfolio.

The fund’s range of exposure across asset classes and geographies was unchanged for 2013.

In 2012, however, the fund reduced its overall exposure to developed market equities to a range of between 32 to 42 per cent from 35 to 45 per cent in 2011. Adia also cut its lower investment threshold for Europe in 2012 to 20 per cent last year from 25 per cent in 2011. The maximum allocation was unchanged at 35 per cent.

The number of Adia employees rose to 1,500 in 2013 from approximately 1,400 in 2012. In particular the fund built out its investment teams operating in the “illiquid space”, dealing with sectors such as real estate, infrastructure and private equity.

Last year Adia’s infrastructure team invested in a consortium that acquired Port Botany and Port Kembla, two landlord ports in Australia, while divesting its stake in Sydney airport.

“Global economic growth will increasingly be sourced from emerging economies,” said Hamed bin Zayed, Adia’s managing director. “The developed world will gradually repair the damage wrought by the financial crisis; and fears of a relapse into crisis will give way to an understanding of the likely contours of a new economic expansion.”

Emerging markets, especially China, are likely to play a greater role in the global growth cycle than ever before.

“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,” he said.

“This approach will allow China to consolidate its economic growth achievements and extend them into an increasingly modern and dynamic economy.”

Adia last year received approval from China’s market regulator to increase its allocation of Chinese A shares under the Qualified Foreign Institutional Investor scheme to $1bn from $500 million.

A survey released last week by the US-based investment management company Invesco predicted that Middle East sovereign wealth funds will remain focused on emerging markets, especially India, Africa and Latin America, together with alternative investments including property and private equity.

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