Abu Dhabi Moves Further from External Fund Managers…

(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.

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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.

Related content: SWFs Building up to Go It Alone

(May 28, 2013) — The Alaska Permanent Fund Corporation has laid the groundwork to internalise three major strands of its investment capability, continuing a growing trend for mega-funds to bring expertise in-house.

Last week, the fund’s trustees agreed to change its investment policy to create an internally managed programme for stocks, and co-investment strategies for private equity and absolute return funds, a report from the meeting states.

“As the fund grows in size, it starts to make fiscal sense to bring investments in-house when we feel our ability is comparable to our external managers,” said Trustee Chair Bill Moran. “If we can match their performance, we can keep our exposure to existing asset classes at target levels while paying lower fees over time.”

The Alaska fund has already brought significant asset management capability in-house. The internal teams run non-US bonds and infrastructure.

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Following last week’s decision, private equity co-investment will be implemented first, with the other initiatives brought online as the fund staffs up, the meeting report said. These private equity co-investments have been allocated $200 million, alongside an allotted $250 million for third party mandates.

Overall, the fund’s allocation to private equity was boosted by a further $775 million to $1.2 billion. Infrastructure funds were also given a further $400 million, taking the total allocation to $1.75 billion.

Investment staff received a mandate to participate in “special opportunity investments with commitments of more than two years”.

Aside from staffing discussions, the issue of leverage and risk loomed large for the trustees of the $46 billion fund.

Maximum leverage in the fund’s real estate portfolio was boosted from 25% to 35% in order to “take advantage of historically low interest rates,” while higher risk investments were permitted in its absolute return portfolio.

“[Trustees] amended the investment policy to allow up to 50% of the absolute return portfolio to be invested with funds seeking a higher return,” the report said. “To-date, the entire mandate had been placed in funds that sought an absolute return with corresponding lower level of risk. This change will provide for more return potential while still managing the total risk level of the absolute return fund program.”