ADIA strides ahead, fulfills its mission

Abu Dhabi / WAM

The Abu Dhabi Investment Authority (ADIA) on Wednesday published its 2015 ADIA Review, providing a thorough overview of its activities over the past year and the outlook for the year ahead.
It includes a detailed analysis of market conditions across the many asset classes in which the authority invests and explains developments within each of its investing departments. It offers insights into ADIA’s culture and explains the authority’s approach to key areas such as investment strategy, governance and risk management.
HH Sheikh Hamed bin Zayed Al Nahyan, ADIA Managing Director, said in his introductory letter that the authority made continuous strides in 2015 towards ensuring that it is optimally positioned for the opportunities and challenges of the future, introducing new initiatives on the investment front to enhance ADIA’s flexibility to capture opportunities that meet its rigorous risk-return requirements. He 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.
“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.
“However, 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. On this theme, last year saw a number of enhancements to our top-down investment process, as well as our ability to generate “alpha”, or market outperformance, within investment departments. For more than two decades, ADIA has designed its portfolio in a way that seeks to anticipate major trends in global markets over the long term. In 2015, we further developed our analytical tools, which, together with increased collaboration between the Strategy Unit, Investment Services Department and our investment departments, enabled us to also make tactical allocation decisions that led to improved returns within asset classes. In addition, ADIA successfully implemented a customised “Smart Beta” portfolio, with
view to further enhance returns from our index-replicating strategies. Whilst relatively small, this portfolio complements our existing tailored approaches to maximising returns over the long term.”
“ADIA’s new operating model for investment departments, which was introduced in late 2014, was implemented last year, allowing internal managers to access a broader range of investment opportunities. For example, in the Fixed Income and Treasury Department, a newly introduced mandate provided investment managers with increased flexibility to allocate across the fixed income space, enabling “beta” allocation decisions in a risk-controlled manner. In a separate development, the Alternative Investments Department expanded its investment universe to include co-investments in ‘special situations” alongside its managers, as well as an ability to invest in smaller managers.
“Together, these initiatives and others provide an insight into the behaviours and ways of thinking that have made ADIA successful over the years, as expressed by our cultural values – prudent innovation, effective collaboration and disciplined execution, the Smart Beta project alone was the result of close teamwork between eight ADIA departments. We are proud of ADIA’s culture, which plays a vital role in ensuring that we continue to fulfil our mission, even in a lower-growth environment.
“From an overall portfolio perspective, 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. ADIA’s 20-year and 30-year annualised rates of return were 6.5% and 7.5% respectively, 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 was another busy year on the organisational front, with the General Services Department being folded into the Human Resources Department, in order to combine it with other related functions that support ADIA’s employees. Within the Private Equities Department, a leadership transition saw Hamad Shahwan Al Dhaheri assume the position of Executive Director, with responsibility for and oversight of the Department’s activities. We are grateful for the contribution provided by Hareb Al Darmaki, one of ADIA’s longest-serving leaders, in building and guiding the Department over so many years, and I am pleased that he will continue to contribute to ADIA’s success, both as an Advisor and in his continuing role as Deputy
Chair of the Investment Committee. The Private Equities Department also appointed a new Global Head of Private Equities, reporting to Al Dhaheri, who joined in early 2016.
“The Internal Equities Department appointed a Head of US Equities and began building out its US team during 2015. The team also added a new Head of Japan, and appointed several professionals to a newly created High Conviction Global mandate. As in previous years, a key focus during 2015 was employee education and development. This included the creation of a new Recruitment and Development Committee with a mandate to develop an integrated view of UAE National development across the organisation.
“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 fulfil 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. Still, the 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.”