Abu Dhabi’s sovereign wealth fund has made big changes as active management wins



Published on 27/10/2022

The Abu Dhabi Investment Authority (ADIA) has embarked on a series of changes to its asset allocation as economic regimes shifted from a QE world that caused inflation to a world where central banks raise interest rates. ADIA is not the only sovereign wealth fund currently concerned about inflation and how central banks are handling the problem.

ADIA increased its internally managed assets to 54% from 50% in previous years, but at the same time reduced its workforce from a peak of 1,700 in 2019 to 1,520 employees at the end of 2021. In December 2013 , ADIA had 75% of its assets managed externally and only 25% internally with approximately 1,500 people. Simplistically, ADIA was able to manage and deploy more money internally with less headcount.

In addition, ADIA has adopted active management to be at 58% of its assets against 55%. This trend towards active management, even as its assets under management grow, shows ADIA’s preference for private markets such as real estate, hedge funds, infrastructure and private equity over income securities. fixed and listed companies. The sovereign investor still plays in listed infrastructure companies.

ADIA’s Private Equity department deployed more capital in 2021 than ever before. Direct investments accounted for 58% of the private equity unit’s overall deployment in 2021, compared to 55% in 2020, with the balance committed to funds. In total, ADIA’s PE unit made 40 direct investments in 2021, up from 25 the previous year, including 12 co-investments in early-stage companies alongside their venture capital partners. ADIA has made a number of growth-stage investments and has also been able to find attractive off-market and follow-on investment opportunities from its growing portfolio. For example, ADIA’s PE unit deployed additional capital as part of the merger of two of its portfolio companies, Constellation Automotive Group and CarNext, two digital marketplaces for used cars. ADIA remains focused on biotechnology companies. ADIA participated in Generate Biomedicines’ US$370 million Series B financing and Eikon Therapeutics’ US$500 million Series B financing.

Stocks and Hedge Funds
On the active management side, ADIA manages its public equity investments primarily through the Equity Department (EQD). In 2021, this department hired fund managers on high confidence strategies with higher volatility profiles. ADIA also invested in some low volatility strategies. ADIA reduced its target allocation to emerging market equities and European equities, opting for US and Asian equity markets. The performance of emerging market equities in some markets is impacted by the strength of the US dollar. ADIA joins its GCC sovereign wealth fund peers in investing more in the United States and being more selective in European countries.

Bond portfolios have been rocked in 2022, and ADIA has been impacted by its exposure to government bonds, like other investors. The sovereign investor had lowered its target range for government bonds – a first since the investor began publicly publishing allocation ranges. ADIA continues to seek bond strategies and managers capable of generating alpha. In 2021, ADIA awarded a number of mandates to global bond managers.

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