Abu Dhabi’s $697 Billion Wealth Fund Is Hiring

(Bloomberg) -- In a world of diminishing returns, Abu Dhabi’s top sovereign wealth fund is hiring as it boosts active management of its estimated $697 billion portfolio.

Abu Dhabi Investment Authority plans to "add a number of new positions, mostly within investment and research-focused roles" in its fixed income and treasury department this year, according to its annual report. The fund’s 20-year annualized rate of return fell to 5.4% from 6.5% a year earlier.

  • ADIA’s returns fell to the lowest since it began reporting in 2008.
  • Still, the fund almost matched the performance of the S&P 500 stock index, which had an average annualized return of about 5.6% over the past 20 years.
    • Developed market equities make up as much as 42% of ADIA’s portfolio. Besides equities, it also holds bonds, credit, alternatives, real estate, private equity, infrastructure and cash.

The fixed income and treasury department “has begun scaling up its active investing, with a view to going fully active in coming years, compared with around 40% currently,” Managing Director Sheikh Hamed bin Zayed Al Nahyan said in the report. The fund raised the portion of actively managed investments to 55% of its portfolio in 2018, up from 50% the previous year.

ADIA’s private equity unit is also becoming more active. It sourced about 40% of its investments last year, a new high, up from 30% the previous year. While the total value of new principal investment has more than doubled since 2016.

Sovereign wealth funds have been stepping up direct investments as they seek to generate returns in a low interest rate environment. ADIA earlier this month agreed to buy a 30% stake in Domestic & General Group Ltd., the U.K. appliance warranty provider owned by CVC Capital Partners. It also teamed up with EQT Partners in pursuit of Nestle SA’s $10 billion skincare business.

ADIA, the world’s third-largest sovereign wealth fund according to the Sovereign Wealth Fund Institute, has been boosting its in-house teams over the past few years as it cuts the use of external fund managers. It manages about 45% of its assets in-house now, up from 25% in 2013.

Other key highlights of ADIA’s annual report:

  • “While ‘late-cycle’ has become a common term in market outlooks for 2019, we believe that the diversity and adaptability of economies means that the current cycle may well surprise with its resilience,” Sheikh Hamed said in the review.
  • The fund is worried about the rise of nationalism. Globalization has helped boost growth and asset prices over the past few decades, and investors that have benefited from those trends need to “present the positive case and ensure that the public debate is well informed.”
  • It’s also worried about climate change. The fund, which invests Abu Dhabi’s excess oil revenue, has made the impact on the environment a formal consideration in its review of investment proposals. It has also created eight new internal task-forces to assess the impact of climate change on its portfolio.
  • It will invest more in India and China, with ADIA’s China real estate exposure up by one-third over the past two years.
  • The fund created a new mandate for investing in Canada, and appointed an external manager to handle it. During 2019, it will look at creating more single country portfolios where it sees investment opportunities.

©2019 Bloomberg L.P.

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