By Mahmoud Habboush
The Abu Dhabi Investment Authority, one of the world’s biggest sovereign wealth funds, said its long-term investment gains fell for a second consecutive year.
The fund’s 20-year annual rate of return fell to 6.1 percent at the end of 2016, from 6.5 percent a year earlier, and 7.4 percent in 2014, it said in an annual review. Over three decades, annual returns slowed to 6.9 percent from 7.5 percent. Gains were curbed by excluding high returns from the mid-1980s and 1990s, Managing Director Sheikh Hamed bin Zayed Al Nahyan said in the review.
ADIA will continue to increase direct private-equity investments in 2017, he said, after reducing its reliance in recent years on external fund managers. Its alternative investments unit started an “emerging opportunities” mandate to invest in asset types not covered by other departments, which would be internally staffed and become active this year.
Abu Dhabi’s government established ADIA in 1976 to help diversify its oil-reliant economy by investing in various asset classes across the globe. Fitch Ratings Ltd. last July estimated that ADIA’s assets would drop to $475 billion at the end of 2016, from an estimated $502 billion in 2014. The sovereign wealth fund doesn’t disclose how much money it manages for the government.
“Economic growth in the decade ahead will be dominated by the emerging world,” Sheikh Hamed said. “We expect that over two‑thirds of the growth in global gross domestic product over the coming 10 years will come from those emerging economies; with roughly half coming from China and India.”
Since 2010, the fund has increased its allocation to emerging markets to between 15 percent and 25 percent from 10 percent to 25 percent in the years before, according to the review. It opened its Asian office in Hong Kong in 2016.
“Rising interest rates and fiscal stimulus, particularly in the U.S., point to continued dollar strength, although market anticipation of this means that other factors will likely be needed to prompt significant moves,” the review said. “Until that evidence is forthcoming, we remain in a low-growth, low-return world, with U.S. equities and a U.S. dollar that appear somewhat stretched at current valuations.”
The portion of the fund’s assets overseen by external managers remained at 60 percent, the fund said, from about 65 percent in 2014 and about 80 percent in 2009.
Au Dhabi — holder of about 6 percent of global oil reserves — has been cutting spending over the past two years and tapping cash reserves to help plug a budget deficit after the slump in crude. It has also engaged in a wide-ranging consolidation activity, merging banks, funds and oil companies.