Abu Dhabi Investment Authority's real rate of return stays steady
Sovereign wealth fund's investment strategy to remain focused on identifying long-term trends
Despite volatile conditions that saw equity markets end 2015 little changed from where they began, the Abu Dhabi Investment Authority, or Adia, recorded a creditable performance from an overall portfolio perspective, the world's leading sovereign wealth fund said.
In its 2015 annual review, Adia said its 20-year annualised rates of return fell to 6.5 per cent in 2015 from 7.4 per cent the year before. The fund's 30-year rate of return slipped to 7.5 per cent from 8.4 per cent. "This was primarily as a result of strong returns from the mid-1980s and 1990s falling out of the rolling averages over the periods in question."
"Nonetheless, Adia's real rate of return has remained consistent with historical levels," it said.
Shaikh Hamed bin Zayed Al Nahyan, Adia managing director, said the fund made continuous strides in 2015 toward ensuring that it is optimally positioned for opportunities and challenges of the future. In 2015, the investment fund introduced new initiatives on the investment front to enhance its flexibility to capture opportunities that meet its rigorous risk-return requirements.
"Against a backdrop of slowing global growth, Adia's investment strategy will remain focused on identifying long-term trends and patiently growing capital," said Shaikh Hamed.
Now in its 40th year, Adia invests across more than two dozen asset classes globally. It does not disclose the total size of its assets, but the US-based Sovereign Wealth Fund Institute, which tracks the industry, estimates them at $792 billion.
In 2015, Adia continued to reduce the proportion of its assets managed by external fund managers to 60 per cent, by strengthening its in-house capabilities, the review said. In 2013, external fund managers managed 75 per cent of Adia's assets and in 2014, 65 per cent.
Shaikh Hamed noted that recruitment and employee development were priorities during the year, with several key internal and external appointments made, and steps taken to further refine the authority's approach to developing UAE national talent.
"Looking forward, I am confident that the considerable experience accumulated within Adia over almost 40 years, and its continuous ability to evolve, means that it remains strongly positioned to fulfill its mission, irrespective of market conditions. It is worth noting that throughout Adia's history, there have been prolonged periods during which oil prices have hovered around or below current levels," said Shaikh Hamed.
He said the oil price declines witnessed in late 2015 and into 2016 offer a clear reminder of the sound logic underpinning Adia's diversified and disciplined approach to portfolio management.
"At its core, this has always involved closely monitoring market conditions and prudently maintaining appropriate liquidity at different points of the economic cycle. This ensures we are always able to meet our obligations to the government of Abu Dhabi, if required, without compromising long-term investment goals."
Shaikh Hamed recalled that almost 40 years have passed since the government of Abu Dhabi created Adia as an independent entity with the mission to generate economic returns for the benefit of future generations.
"Now, as then, this mission serves as a powerful guide and steadying influence to ensure we remain prudent and disciplined in everything we do, recognising the cumulative effect that our decisions can have on Adia's success. It also provides a powerful incentive to remain calm and focused on our long-term goals, particularly during more challenging market environments when the temptation to react may be strong."
He said long-term success also requires a willingness to adapt, recognising that the world is constantly evolving, and "we must remain alert and open to innovation where it can bring genuine benefits."
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