Wealth fund reveals investment strategy

Monday, 15 March 2010

In a break from its traditional secrecy, one of the world’s largest pools of capital, the Abu Dhabi Investment Authority, on Monday publishes its first annual review listing its long-term results and investment strategy.

Many sovereign wealth funds (SWFs) have been criticised for a lack of transparency, and some western officials and politicians have in the past expressed concern over potentially politically-motivated investments in sensitive institutions and companies.

While several funds came to the rescue of western institutions during the financial crisis, pumping billions of dollars into stricken banks, the International Monetary Fund and two dozen leading SWFs in 2008 formulated a set of guidelines for state-controlled investment funds, known as the Santiago Principles, to ease concerns over their motives.

ADIA’s decision to publish its annual review brings it in line with these principles, and opens up a glimpse into one of the world’s largest SWFs.

Along with the IMF, the Abu Dhabi fund co-chairs the International Working Group that formulated the SWF guidelines. “It shows the Santiago Principles are having some effect,” said Rachel Ziemba, an economist at RGE Monitor.

“SWFs see it is in their interest to provide more information, as it reduces the concerns foreign regulators have about them.”

The review states ADIA’s 20-year and 30-year annualised rate of return to the end of 2009 was 6.5 per cent and 8 per cent respectively. It also breaks down its asset allocation by asset class and geographical distribution, and discusses its investment aims and corporate governance.

“We understand trust must be earned over time and maintained through ongoing action. So with the publication of this, our first annual review, we aim to enhance understanding of ADIA in key areas such as governance, investment strategy, portfolio structure [and] our approach to risk,” Sheikh Ahmed bin Zayed al Nahyan, managing director, said in the report.

The publication of an annual review is a marked shift by the opaque fund.

However, the fund declined to divulge its total assets, estimated at about $350bn (€257bn, £231bn) to $450bn, and it is less transparent than most other state-controlled funds, according to the Sovereign Wealth Fund Institute.

ADIA’s most high-profile investment has been in Citigroup. However, the relationship has soured – the fund has an arbitration claim against the US bank, alleging it was the victim of “fraudulent misrepresentations” over a $7.5bn investment in November 2007.

ADIA alleges that the numbers Citi gave it were not correct, while Citi says the claims are without merit.