The Abu Dhabi Investment Authority (Adia) remains focused on China’s and India’s long-term growth prospects, even after emerging markets were hit last year by a slowing global economy.
The emirate’s main sovereign wealth fund said in its annual review, released on Wednesday, that long-term returns declined last year amid volatility in markets, although it said the lower rates were mainly caused by statistical averaging over the long periods it uses to measure returns.
Adia said its annualised returns over 20 and 30 years were 6.5 and 7.5 per cent, respectively, at the end of last year. That compared with 7.4 and 8.4 per cent the previous year, and 7.2 and 8.3 per cent as of the end of 2013.
Adia does not give any detailed performance review of the money it manages, nor does it stipulate changes in the size of the fund, which the Sovereign Wealth Fund Institute ranks as the second-largest in the world, at about US$790 billion, compared with about $773bn in June last year. The biggest fund is Norway’s at $848bn.
With Adia being one of the world’s most influential investors, its annual report is widely watched for its outlook on the investment climate and markets generally.
The fund’s managing director, Sheikh Hamed bin Zayed, pointed to the continued long-term growth prospects of China and India, despite economic headwinds and the need for huge structural reforms undertaken by the former in the past couple of years.
“These emerging economies that are positioned more as commodity consumers are better placed to grow in the years ahead,” Sheikh Hamed said in the report’s outlook section.
“China and India dominate this group, of course, and both offer promise based on evident efforts to reform. China is making great strides in integrating its capital markets into global markets, and there are optimistic signs that India is seeking to open its markets to trade and outside investment,” he said.
Adia gives very broad parameters for its portfolio and said it invested 50 per cent in “index replicating strategies”.
It also said it invests between 32 and 42 per cent in equities of developed countries and between 10 and 20 per cent in emerging market equities.
Notably, Sheikh Hamed said of the fund’s approach that “it will also likely become more difficult to maintain conviction in markets where returns are lower but volatility remains high”.
The fund’s review of markets noted the MSCI All Country World Index – the most widely tracked index of world share markets – fell last year by 1.8 per cent, “driven in large part by outflows from emerging markets”.
Adia also noted that among the worst hit emerging market equities last year were Brazil’s, where the Bovespa index declined by about 42 per cent; Turkey’s, whose ISE 100 index dropped 33 per cent; and South Africa’s, where the FTSE JSE All Share lost about 22 per cent.
Adia has been making efforts for the past few years to take more of its investment activity in-house, to further develop its Emirati talent and to add sophistication to its investment approaches.
In the equities department, for example, after hiring a new head of global equities at the end of 2014 and a new head of US equities last year, Adia has been pursuing a wider range of strategies, including something it calls a “high conviction global mandate”, as it reduces its passive, index-following portfolio share.
It has also added to its alternative assets staff and is increasing its in-house managed portfolio there. The percentage of its portfolio externally managed decreased to 60 per cent last year from 65 per cent the year before, and the proportion in passive strategies has also declined, to 50 per cent last year from 55 per cent in 2014.
The fund rarely volunteers information about new investments, but recent examples reported by others include a half share in a company developing a new mall in Macau, and an “anchor” investment stake in Mahanagar Gas, which is developing gas supply systems in Mumbai, both deals done last month.
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