Abu Dhabi Investment Authority cuts exposure to developing markets, targets emerging markets

By bne IntelliNews May 27, 2013

The Abu Dhabi Investment Authority (ADIA), said to be the world's richest sovereign wealth fund with USD 627bn of assets, lowered its target exposure to developed market stocks in 2012 to a range of 32%-42% from 35%-45% the year before, the fund said in its latest annual review published on May 27. ADIA also reduced its minimum exposure to Europe across its asset portfolio to 20% in 2012 from 25% a year earlier but kept its maximum allocation unchanged at 35%.

ADIA said it maintained its exposure to emerging market stocks in a 10%-20% range but underscored rising interest. "Economic leadership is passing to emerging markets, not just as their weight in the global economy passes 50%, but as their share of likely future global growth moves far higher," Hamed Bin Zayed al-Nahayan, ADIA's managing director said in the review.

“Emerging economies share a set of important supports to growth: rapid growth in productivity, favourable demographics, lower levels of debt and leverage, improving institutional frameworks and endowments of natural resources. These countries are diverse, and their individual prospects may vary, but as a bloc they continue to offer exciting and attractive opportunities to deploy capital,” he noted.

ADIA also upped its exposure limit on Chinese equities to USD 500mn in Q3 2012 from the previous USD 200mn cap. In USD terms, the 20-year and 30-year annualised rates of return for the ADIA portfolio were 7.6% and 8.2% respectively, as of 31 December 2012.

ADIA noted that roughly 75% of its portfolio was run by external asset managers, down from 80% in 2011. The fund was upbeat on the bond market, saying that equities will remain attractive “as bond yields are low and investors are ready to take on more risk.” ADIA began allocating money to non-investment grade bonds and was looking for external managers for such assets, the review showed.

ADIA was established in 1976 to manage the oil wealth of the Abu Dhabi emirate. The fund has increased its infrastructure-related portfolio in recent years, seeking to diversify away from volatile financial services especially after the financial crunch in 2009.

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