Abu Dhabi Wealth Fund Says Long-Term Investment Gains Fell

  • Sovereign wealth fund’s 20-year returns drop to 6.5 percent
  • ADIA continues to move away from using external fund managers

The Abu Dhabi Investment Authority, one of the world’s biggest sovereign wealth funds, said its long-term gains dropped in 2015.

The fund’s 20-year annual rate of return slowed to 6.5 percent at the end of 2015, from 7.4 percent a year earlier, it said in its annual review. Over three decades, annual returns fell to 7.5 percent from 8.4 percent. The sovereign wealth fund doesn’t disclose how much money it manages for the government.

ADIA, as the fund is known, is bringing more investment management in-house and putting less assets in index-tracking funds as it seeks higher returns. The portion of the fund’s assets managed by external managers fell to 60 percent at the end of 2015, from 65 percent a year earlier, while assets invested in index-replicating strategies fell to 50 percent from 55 percent. About 80 percent of assets were managed externally in 2009.

“ADIA put in a creditable performance in 2015 despite volatile market conditions that saw equity markets end the year little changed from where they began,” managing director Sheikh Hamed bin Zayed Al Nahyan said in the review. Long-term investment gains fell in 2015 as a result of “strong returns from the mid-1980s and 1990s falling out of the rolling averages,” he said.

The government will probably take billions of dollars out of ADIA to help finance the emirate’s 2016 budget amid a slump in oil prices, Fitch Ratings said in February. Assets will drop to $475 billion at the end of the year, from an estimated $502 billion at the end of 2014, Fitch said, adding that it expects them to rise again in 2017. The prospectus for Abu Dhabi’s $5 billion bond sale in April said the 2016 budget deficit would mostly be financed through debt issuance.

“Lackuster Returns”

Most global markets delivered “lackluster returns” in 2015, Sheikh Hamed said, with emerging markets under-performing developed ones. Investors should prepare for a slower pace of expansion in the developed world over the medium term and look to commodity-consuming emerging markets, including China and India, for growth, he said.

The MSCI ACWI Index, a free-float weighted equity index that includes both emerging and developed world markets, fell 4.3 percent in 2015, according to data compiled by Bloomberg. ADIA invests a minimum of 10 percent of its assets and maximum of 20 percent in emerging market equities, with a range of 32 percent to 42 percent in developed market equities.

Budget Deficit

Abu Dhabi -- holder of about six percent of global oil reserves -- is cutting spending and tapping cash reserves to help plug a budget deficit after the slump in crude. It is merging two of its largest banks -- National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC -- to better compete in size with regional rivals such as Qatar National Bank SAQ and bolster its ability to lend and secure funding as it grapples with lower oil prices. Last month the government announced plans to merge its two biggest state-owned investment companies, International Petroleum Investment Co. and Mubadala Development Co.

The emirate’s 40 year-old fund, which invests the government’s budget surpluses, also said it started looking to co-invest in “special situations” through its Alternative Investments unit in 2015 and had expanded its real estate and infrastructure portfolio.

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