Abu Dhabi wealth fund optimistic despite global uncertainty

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Aerial view of Abu Dhabi, the capital city of the UAE. Photo - Faisal Saeed Dama

Despite an uncertain outlook, the world’s richest sovereign wealth fund believed the global economy offered opportunities, the government-run authority’s managing director said in a report released Monday.

The Abu Dhabi Investment Authority, one of the world’s biggest sovereign wealth funds, said its long-term returns in 2011 dropped as global equity markets fell.

“Despite facing undoubted short-term risks, the global economy offers many exciting and important opportunities. Economic growth each year is advancing millions of people out of poverty and into more active participation in the global economy,” Sheikh Hamed bin Zayed Al Nahyan, Managing Director ADIA, said.

He added that despite facing many twists and turns, the global economy continued its recovery last year.

The fund’s managing director suggested that investors such as ADIA can help fuel economic advances by pumping cash into stocks, bonds, hedge funds and other investments.

“As a long-term investor, we see ourselves … as providers of this necessary capital, with the advantage of patience and the ability to ride out dips in the economic cycle,” the top official, also a member of the emirate’s ruling family, said in his statement.

According to the 2011 report, ADIA generated an average return on its investments of 6.9% annually over the past 20 years and 8.1% annually over the last 30 years. That compares with 20-year and 30-year annual returns of 7.6% and 8.1% respectively at the end of 2010.

The fund, the biggest of several of Abu Dhabi’s vehicles to manage its oil wealth, is chaired by the UAE’s President Sheikh Khalifa bin Zayed Al Nahyan.

Abu Dhabi is the capital of the United Arab Emirates, OPEC’s fourth-largest oil exporter. It controls more than 90% of the federation’s oil reserves.

In 2008, ADIA and other sovereign wealth funds agreed on a voluntary set of principles calling for greater openness by the pools of government-held wealth. The move came after concerns raised by some quarters in Western countries about the funds’ growing size and that their investments could be politically motivated.

This is the third year that ADIA has released an annual report. The ADIA received a transparency rating of 5 on the ‘Linaburg-Maduell Transparency Index’, developed by Carl Linaburg and Michael Maduell, at the Sovereign Wealth Fund Institute.

ADIA insists it invests solely on economic terms and does not want to play an active management role in companies it buys into.

While big-ticket purchases such as its $7.5 billion investment in Citigroup Inc. in 2007 raised a few eyebrows, about 80% of its assets are handled by outside fund managers, and some 60% track established indexes such as the S&P 500, according to its report. It aims to keep 35-50% of its holdings in North America, and another 25-35% in Europe.

The fund does not release the size of its assets.

The Abu Dhabi Investment Authority was established in 1976 which replaced Financial Investments Board, part of the then Abu Dhabi Ministry of Finance. The Fund is wholly owned and subject to supervision by the Government of Abu Dhabi. The Sovereign Wealth Fund (SWF) Institute listed ADIA’s assets at a staggering $627 billion.

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