Abu Dhabi wealth fund takes stock in transparency

With assets that include a portfolio of diverse international investments valued between $400 billion and $875bn (Dh1.5 trillion and Dh3.2trn), the Abu Dhabi Investment Authority (Adia) has well positioned itself in the international investment circuit as “an extremely well institutionalised and professional organisation.”

As one of the world’s largest sovereign wealth funds (SWFs), Adia sought to take its reputation a notch higher by releasing its first annual statement this month in response to Western pressure for SWFs worldwide to “open their books” and implement transparency in their organisations.

Transparency is a concept not commonly practiced in the Gulf region where information is rarely disclosed to the public. However, the global financial crisis – which witnessed the collapse of once-towering financial institutions – justified the need for business entities to disclose relevant information as it is believed to lead to efficiency in running their operations.

Adia’s annual review offered a rare glimpse into the fund’s secretive operations, which included investments in North America and Europe. Although unlike what many may expect, it did not provide extensive details about the fund’s balance sheet or the actual size of its assets.

Despite this, the initiative to release a yearly report of its operations was welcomed by financial analysts and considered as a good first step.

“I believe this is a start [in the removal of] the perceived ‘veil of secrecy’ which most people think [surrounds] Adia’s operations, [which has also been a cause] for concern in foreign countries,“ says Michael Potella, director Planning and Budgets of Rise General Trading.

Like other observers, Potella believes that more information should be disclosed in order to properly assess the fund’s real performance.

“Key indicators such as funds under control, assets size, portfolio of investments need to be put in the report. I am sure this will come gradually as Adia becomes more comfortable releasing this type of information,” he said.

Adia reported that it gained an annual average growth of 6.5 per cent over the past 20 years and 8 per cent annual gain over the past 30 years through the end of 2009. The figures showed steady increase when compared with the 6.1 per cent and 7.6 per cent growth registered over similar periods through the end of 2008.

SWFs face mounting pressure to disclose data

Adia’s decision to publish an annual review came after sovereign wealth funds agreed on a voluntary set of principles in October 2008, calling for greater openness by the pools of government-held wealth.

Potella believes it will not be long before other GCC countries follow suit. “Adia has set the trend [and] other sovereign wealth funds in the GCC will definitely provide reports in the future. However, initially, there will be variations in the types and quality of reports coming out.”

Adia’s growing wealth and clout have also alarmed politicians in developed countries.

“[Prior to] the financial crisis, the pressure was on these funds to come out in the open as there were fears that lack of transparency could give foreign governments control over important companies. I however believe that since the financial crisis, the pressure will be relaxed as these countries [welcome] foreign investments to assist in stimulating their countries’ economy,” explains Potello.

Adia’s report also shows that about four-fifths of the company’s holdings are chosen by outside fund managers. The wealth fund relied on tracking indexes such as the S&P 500 for about 60 per cent of its investments.

The report showed that stocks and equities in the developed countries make up its largest sector ranging from 35 to 45 per cent of the fund's holdings. About 35 to 50 per cent of Adia's investments are typically in North America, and another 25 to 35 per cent are in Europe.