News Column

ADIA reports strong growth in investment returns

July 1, 2014

Babu Das Augustine Banking Editor

Dubai: Abu Dhabi Investment Authority (Adia), one of the world's biggest sovereign wealth funds (SWF) on Tuesday said in US dollar terms, 20-year and 30-year annualised rates of return for its portfolio were 7.2 per cent and 8.3 per cent respectively, as of December 31, 2013.

While Adia's 20-year annualised rate of return for 2013 was marginally down from 7.6 per cent in 2012 its 30-year annualised return edged up to 8.3 per cent from 8.2 per cent in the same period.

The Abu Dhabi headquartered SWF's performance is measured based on underlying audited financial data and calculated on a time-weighted return basis. Approximately 75 per cent of Adia's assets are managed by external fund managers whose activities are subject to careful oversight and around 55 per cent of its assets are invested in index-replicating strategies.

Adia carries out its investment programme independently and without reference to the Government of Abu Dhabi. It has no visibility on either the spending and revenue requirements of the Government of Abu Dhabi and its assets are not classified as international reserves.

Last year was a year of continued consolidation and growth for Adia, both internally and in the markets where it invests according to Shaikh Hamed Bin Zayed Al Nahyan, managing director of Adia.

Adia manages a global investment portfolio that is diversified across more than two dozen asset classes and subcategories. Its investment decisions are based solely on its economic objectives of delivering sustained long-term financial returns. "In an ever-changing world, Adia's approach must be one that emphasises continuity over short-term gains," said Shaikh Hamed.

According to Adia's assessment, across the developed markets, 2013 was another good year for equities. Measured in US dollar terms, stocks gained more than 30 per cent in the US and over 25 per cent in both Japan and Europe.

In the US, fears that fiscal tightening would derail growth proved unfounded. At the same time, gains in Japan were supported by a major shift in economic policies aimed at boosting economic performance through aggressive monetary expansion and structural reforms.

These better outcomes led markets to question whether the stimulative policies put in place since the global financial crisis could be nearing their turning point. Such concerns were most apparent in the US, where the Federal Reserve began considering how and when to finish its programme of bond purchases.

Bond markets found this combination of better growth and reduced policy support worrisome: yields across developed markets jumped in the summer, and global indices ended the year with small losses the first negative total returns in 20 years.

According to Adia's assessment Global emerging markets too reported strong performance last year with MSCI World Index posting an overall 23.4 per cent rise in 2013, its best performance since 2009.

Emerging markets proved especially sensitive to signs that monetary stimulus may have peaked. Low yields in the developed world had encouraged capital to flow to emerging economies in search of better returns. Later in the year a reversal of these flows depressed currencies across the emerging world, especially in those countries that had large current account deficits. In addition, emerging economies generally delivered growth in line with or slightly below expectations.

Even in China, which was able to maintain economic growth around 8 per cent, markets were unable to sustain upward momentum. Looking forward, Adia expects global economic growth will increasingly be sourced from emerging economies; the developed world will gradually repair the damage wrought by the financial crisis.

"Despite short-term setbacks, emerging markets, and particularly China, are likely to play a much greater role in this global growth cycle than ever before. For global investors, this of course raises the profile of economic management in these countries," said Shaikh Hamed.

According to Adia, beyond China, the emerging markets are expected to become far more diverse, and less easy to classify. Meanwhile, the developed world are expected to remain critically important to global investors as it is still the primary source of high-quality, investable financial assets, and continues to set the agenda for economic policies and regulation.

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Source: Gulf News (United Arab Emirates)

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