ADIA Cements Largest Sovereign Wealth Fund Status

(February 9, 2012) — The Abu Dhabi Investment Authority (ADIA) has reinforced its place in the rankings as the world’s largest sovereign wealth fund, according to the Las Vegas-based Sovereign Wealth Fund (SWF) Institute.

ADIA topped the ranking with an estimated $627 billion in assets, with China’s main sovereign fund, SAFE Investment Company, ranking second, with $567.9 billion in assets, and Norway’s government pension fund coming in third with $560 billion. However, ADIA scored relatively poorly with cooperate governance and transparency.

According to the recently released report by the SWF Institute, ADIA scored four out of a possible ten points for transparency. On the other hand, the Kuwait Investment Authority received the highest score for transparency (6) for a Middle East sovereign wealth fund — where over one third of the world’s top 20 investment funds are currently located — followed by Qatar Investment Authority (5). Norway’s Government Pension Fund – Global, Singapore’s Temasek Holdings, Alaska Permanent Fund, and Australian Future Fund all received ten out of ten for transparency.

The Middle East region is home to several large SWFs, due to its abundance of natural resources. Around 60% of the investment in these funds, amounting to around $4.8 trillion, was driven by oil and gas revenues.

While ADIA — whose assets range from Citigroup bonds to a stake in London’s Gatwick Airport and residential property in cities worldwide — received a relatively low score for transparency, the traditionally secretive fund has made efforts to open up in recent months. In September, ADIA released its yearly statement to the public on its website, written by Sheikh Hamed bin Zayed al-Nahyan, the managing director and a senior member of Abu Dhabi’s ruling family.

Spurred by global economic growth, the fund revealed that annualised rate of return increased to 7.6% in 2010, compared with 6.5% in 2009.

“While remaining diversified across all major global markets, ADIA continued to benefit during 2010 from its decision a year earlier to tilt exposures in the portfolio toward asset classes and regions able to benefit from better growth prospects,” Sheikh Hamed bin Zayed al-Nahyan, the managing director and a senior member of Abu Dhabi’s ruling family, wrote in the review. “This is an approach that remains in place as we enter 2011.” He continued: “While developed economies continue to demonstrate their ability to innovate and grow, the secular shift in global economic weight from developed to fast-growth emerging economies has accelerated as a result of the financial crisis.”

According to the report, ADIA’s assets were largely allocated to developed equity investments. The fund allocated 60% of its total portfolio to externally-managed indexed funds. Overall, roughly 80% of the fund’s assets were invested by external fund managers. Allocations to developed equity markets constituted 35% to 45% of the fund’s portfolio, the report showed. Emerging market equities made up 10% to 20%. Government bonds made up 10% to 20% of the portfolio.

In terms of geographic prevalence, ADIA allocated 35% to 50% in North America, 25% to 35% in Europe, 10% to 20% in developed Asia, and 15% to 25% in emerging markets, according to the report.