Abu Dhabi Investment Authority Increases Private Equity Allocation

The Abu Dhabi Investment Authority has increased its allocation to private equity, while also decreasing the externally managed proportion of its portfolio, according to the sovereign wealth fund’s 2023 review.

According to the report, the ADIA increased its private equity allocation to a range of 12% to 17% of its total portfolio, up from its previous allocation of 10% to 15%.

“ADIA has leveraged its often decades-long relationships in the sector to broaden and deepen how it accesses the [private equity] sector, and ultimately enhance returns,” Hamed bin Zayed Al Nahyan, managing director of the ADIA, wrote in the review.

The ADIA noted that during the first half of 2023, rising interest rates “complicated private equity deal economics,” leading investors to increase their equity contributions as traditional funding sources were drying up. As a result, the value of global private equity transactions plunged 35% to $474 billion in 2023, its lowest level in five years.

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“The market dislocation presented an opportunity for providers of private credit to fill the gap left by traditional lenders,” Zayed Al Nahyan wrote, adding that private financing accounted for an all-time high of more than 80% of the debt used in leveraged buyouts during 2023. According to the sovereign wealth fund, the outlook for private credit also “remains attractive,” with funds accumulating an estimated $1 trillion of dry powder.

“Against this backdrop, ADIA’s Private Equities Department was able to target attractive investment opportunities across the capital structure,” according to the report. “These included anchoring investments in ‘platform’ opportunities such as Jefferies Credit Partners’ Direct Lending BDC, and Overland Advisors,” which the ADIA identified as a joint venture between Wells Fargo and Centerbridge that focuses on non-sponsored middle market direct lending.

The other 2023 asset allocations the ADIA reported for 2023 were a range of 32% to 42% developed equities; 7% to 15% emerging market equities; 7% to 15% government bonds; 5% to 10% financial alternatives; 5% to 10% real estate; 2% to 7% small-cap equities; and 1% to 5% in cash.

The ADIA report also stated that the proportion of the assets it manages internally has increased to 64% in 2023 from 55% in 2022.

“This increase can be mostly attributed to changes in how ADIA manages parts of its indexed equity exposures through the Core Portfolio Department, which has substantially expanded its internal capabilities in recent years,” the ADIA report stated. “In parallel, ADIA is continuing to expand and deepen relationships with leading external managers across various asset classes.”

As of the end of 2023, the ADIA reported 20- and 30-year annualized returns of 6.4% and 6.8%, down from 7.1% and 7.0%, respectively, in 2022.