Abu Dhabi wealth fund Adia boosts private equity investments

It remains bullish on long-term trends in the midst of economic, energy and technological transition

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

Abu Dhabi Investment Authority has increased its private equity allocation and boosted its in-house portfolio management capabilities as the sovereign wealth fund continues to seek long-term investment opportunities and further diversify its portfolio.

The portfolio adjustments made last year underpins Adia's strategy of seeking investment opportunities in areas of “strategic advantage”, the sovereign wealth fund, one of the largest in the world, said in its 2023 annual review on Wednesday.

Adia's private equity allocation in 2023 grew to 12 per cent-17 per cent of its total portfolio, in comparison with 10 per cent-15 per cent in 2022.

“In recent years, Adia has sought to emphasise total returns at a portfolio level, in contrast to the more traditional approach of tasking individual asset classes to outperform benchmarks,” Sheikh Hamed bin Zayed, Adia's managing director, said.

“This has led Adia to steadily increase its exposure at a total portfolio level to areas in which it holds natural competitive advantages. These include private assets, where Adia’s long-term focus and resilience to market cycles enables it to capture opportunities during market dislocations.”

At a total portfolio level, the proportion of Adia’s assets managed internally also grew to 64 per cent in 2023, up from 55 per cent in 2022. The sovereign fund attributed the increase largely to changes in how it manages parts of its indexed equity exposures and a substantial increase in “internal capabilities in recent years”.

“This provides Adia with additional flexibility to optimise its investment activities and implement asset allocation decisions more efficiently,” Adia said. “In parallel, Adia is continuing to expand and deepen relationships with leading external managers across various asset classes.”

Despite global headwinds, going forward, Adia with its long-term focus is positioning itself to capitalise on emerging opportunities. “We believe that several interconnected, global transitions are currently under way: technological, economic, and energy-related, among various others,” Sheikh Hamed said.

Adia also continues to build on the opportunities presented by the energy transition, and it is “fully integrating climate considerations into its investment strategy and processes”, he added.

By the end of 2023, Adia's investments had contributed to approximately 23 gigawatts of operational renewable energy projects, with an additional 29 gigawatts of projects either under construction or in development.

The wealth fund, which does not disclose its assets, invests on behalf of the Abu Dhabi government. It is the largest sovereign wealth fund in the Gulf and the fourth largest in the world, with estimated assets of $993 billion, according to consultancy Global SWF.

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

The fund said politics is a key driver for fixed income this year due to elections across the world. Going forward, “it seems likely that monetary policy normalisation will continue as global inflation cools, although the speed and extent of the loosening remains difficult to predict”, Adia said.

In the real estate sector, the fund has been actively expanding its US student housing platform in response to the increasing demand, while it has also grown its presence in the European residential market.

As of December 2023, Adia’s 20-year and 30-year annualised rates of return, on a point- to-point basis, were respectively 6.4 per cent and 6.8 per cent, compared to 7.1 per cent and 7 per cent a year earlier, the fund said.

Abu Dhabi last month was ranked as the world's top city for sovereign wealth fund capital, managing $1.67 trillion in assets, according to a report by industry specialist Global SWF.

The UAE capital is home to major funds including Adia, Mubadala Investment Company, investment and holding company ADQ, Abu Dhabi Fund for Development, Tawazun (including Edge) and the Emirates Investment Authority, it said.