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On thin ice: Abu Dhabi wealth fund ADIA wary on global growth

On thin ice: Abu Dhabi wealth fund ADIA wary on global growth

Says global economic growth to stay "hesitant"; Annualised 20-yr and 30-yr returns rises in 2010 vs 2009; Expects equity returns to revert back to historical levels

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September 13, 2011 1:14 by



Rising government debt levels and inflationary pressures in emerging economies will cast a shadow on global economic growth, sovereign wealth fund Abu Dhabi Investment Authority (ADIA) said in its 2010 annual review.

The fund, whose assets range from Citigroup bonds to a stake in London’s Gatwick Airport, expects economic growth to remain “hesitant” in the near-term but said it was confident equity returns will revert back to historical levels of 6-8 percent in a post-recovery phase.

“Looking forward, we anticipate global economic growth to remain hesitant in the near term as governments in major developed markets begin the sensitive task of cutting potentially burdensome debt levels without undermining growth,” ADIA said in the report.

“Assuming bond yields remain low and in the absence of major negative macro events – equities appear relatively attractive even using conservative assumptions with regard to the equity-risk premium.”

ADIA provided a rare glimpse into its investment portfolio with its first annual review published in 2010. In the same year, ADIA named Sheikh Hamed Bin Zayed Al-Nahayan, the brother of the UAE’s ruler, as managing director after the death of previous head Sheikh Ahmed in a glider crash in Morocco.

PORTFOLIO UNCHANGED

ADIA, considered to be one of the world’s largest sovereign funds, returned 7.6 percent on an annualised basis over a 20-year period, as of December 31, 2010, it said in the review. That was higher than the 6.5 percent annualised return for the previous year.

On the same basis, the fund returned 8.1 percent over a 30-year period, against 8.0 percent in 2009.

Overall portfolio composition remained relatively unchanged from the previous year with developed market equities gaining maximum allocation of 45 percent.

Emerging market equities formed between 10-20 percent of the total portfolio, while government bonds formed at least 10 percent of its portfolio with a maximum allocation of 20 percent.

North America and Europe accounted for a major chunk of investments, with about 60 to 85 percent going to the regions. Emerging markets constituted at least 15 percent.

ADIA restructured its external equities department, separating indexed funds from active funds as part of a more focused strategy, it said last month.

While the Abu Dhabi fund does not disclose its net worth, the Sovereign Wealth Fund Institute estimated its value at $627 billion, making it the largest sovereign wealth fund in the world. (By Dinesh Nair; Editing by David Cowell)



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