Abu Dhabi Moves Further from External Fund Managers…

Why employ a fund manager when you can make a multi-billion investment yourself?

(May 28, 2013) — One of the largest pools of institutional assets has moved a considerable part of its capital away from external asset managers over the last 12 months and increased its internal team.

The Abu Dhabi Investment Authority (ADIA) has brought five percentage points of its considerable assets under the auspices of its in-house investment team, its 2012 annual report has revealed this week. ADIA said at the end of 2012, some 75% of its assets were managed externally, down from approximately 80% a year earlier.

Although the sovereign wealth fund does not disclose its assets, they are estimated to be around $627 billion, making the shift roughly equivalent to $30 billion brought internally.

At the same time, more of the fund’s assets are now managed on an active basis, the report said. At the end of 2012, around 55% were run on index-replicating strategies, down from 60% a year earlier.

To be able to run all this new money internally, ADIA has increased its headcount by around 10% over the last 12 months from 1,275 at the end of 2011 to around 1,400. The personnel distribution has remained largely the same except for a slight increase in people manning the home office in the United Arab Emirates. The fund announced several high profile hires over the course of the year, including leaders for several asset class units.

Tellingly, the report noted ADIA had formally recognised the important role played by the human resources and other services outside of direct fund management within the institution.

In terms of asset allocation, ADIA’s strategic portfolio has remained largely the same as last year – however, it has trimmed its developed markets holding from a maximum and minimum of 45% and 35% to 42% and 32% respectively.

The fund did not increase its thresholds for emerging markets, but the annual report is clear in its intentions to expand the asset class’s standing in the portfolio.

“ADIA last year conducted a series of high-level, fact-finding missions to key markets around the world,” said ADIA Managing Director Hamed bin Zayed Al Nahyan in the preface to the report. “These included relationship-building meetings with government officials, corporate leaders, trade bodies, financial institutions, think tanks and research analysts, and the media, across Europe and also key growth markets of the future, including India and the tiger economies of South East Asia.”

In 2012, ADIA received approval from the Chinese market regulator to increase its allocation to Chinese equities under the Qualified Foreign Institutional Investor (QFII) scheme from $200 million to $500 million. ADIA said the increase was implemented during the third quarter of the year.

It also appointed fund managers for Latin America.

Fixed income managers may note that the giant investor began installing a new market-leading technology system specifically tailored to ADIA’s needs. “The new system will support the department’s portfolio management and decision-making activities, including risk management and performance attribution, and is due to be fully implemented during 2013 and 2014.”

The fixed income team also began looking at sub-investment grade credit for the first time, the report noted, with allocations made to managers in the second half of the year.

To access the ADIA report, click here.

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