First with Financial Comment from Arabia

Abu Dhabi Investment Authority questions sustainable recovery

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Reckoned to be world’s largest sovereign wealth fund, Abu Dhabi Investment Authority has become more transparent with the publication of its first ever annual review.

Managing director Sheikh Ahmad bin Zayed Al Nahyan said: ‘considerable uncertainty remains about the outlook for 2010. Most pressing is the sustainability of the economic recovery’.

Rally over?

Readers of will know that this fear remains uppermost in the minds of many local investors. From an investment perspective the durability of the rally in financial markets over the past year is the most immediate worry and a correction is widely expected by experts.

ADIA does not reveal the value of the assets it has under its management in the new report. A report from the UN cited ADIA assets at $329 billion at the end of 2008 after losses of $183 billion in the global financial crisis. And given the recent recovery in financial markets a figure closer to half a trillion dollars is now generally accepted, although it could be as high as $800 billion.

But the ADIA report does give an indication of its geographic spread: North America and Europe 60-85 per cent; Asia and emerging markets 25-45 per cent. By asset class 46-66 per cent is held in equities, 10-20 per cent in government bonds, five to 10 per cent in hedge funds and up to 10 per cent in cash.

ADIA was formed in 1976 to invest the surplus oil revenues of Abu Dhabi and has achieved an eight per cent annual return over the past 30 years and 6.5 per cent over the past two decades, according to the new report. Some 1,200 staff work for the fund of whom a third are UAE nationals.

Solid performance

The focus is clearly on achieving solid but not spectacular growth in asset values over the long-term. Abu Dhabi has only very occasionally dipped into this huge fund during periods of low oil prices.

Sovereign wealth funds may have only recently been noticed by the international press as they came to the aid of some banks in the early days of the global financial crisis. Buying on the dips might be standard investment theory but actually these investments have proven some of the worst ever for the sovereign wealth funds.

Nobody gets it right ever time and there is good reason to be cautious about the sustainability of the recent recovery.


Written by Peter Cooper

March 16, 2010 at 8:59 am

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