Abu Dhabi wealth fund's long-term gains slowing

ABU DHABI • The Abu Dhabi Investment Authority (ADIA), one of the world's biggest sovereign wealth funds, said it will focus its private-equity investment drive around China and India after long-term gains dropped for a second consecutive year.

The fund's 20-year annual rate of return fell to 6.1 per cent at the end of 2016, from 6.5 per cent a year earlier, and 7.4 per cent in 2014, it said in an annual review.

Over three decades, annual returns slowed to 6.9 per cent from 7.5 per cent. 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.

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 last July estimated that ADIA's assets would drop to US$475 billion (S$656.6 billion) at the end of 2016, from an estimated US$502 billion in 2014. The sovereign wealth fund does not 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 emerging markets allocation to 15-25 per cent from 10-25 per cent in the years before, according to the review. It opened its Asian office in Hong Kong last year.

"Rising interest rates and fiscal stimulus, particularly in the US, 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 US equities and a US dollar that appear somewhat stretched at current valuations."

The portion of the fund's assets overseen by external managers remained at 60 per cent. ADIA will continue to increase direct private-equity investments with a particular focus on India and China, the fund said.

Abu Dhabi - holder of about 6 per cent 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 wide-ranging consolidation, merging banks, funds and oil companies.

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A version of this article appeared in the print edition of The Straits Times on July 05, 2017, with the headline 'Abu Dhabi wealth fund's long-term gains slowing'. Print Edition | Subscribe