Abu Dhabi Sovereign Wealth Fund Made Big Changes as Active Management Wins

Posted on 10/27/2022


The Abu Dhabi Investment Authority (ADIA) embarked on a series of changes to its asset allocation as economic regimes changed course from a QE world that has caused inflation, to a world where central banks are increasing interest rates. ADIA is not the only sovereign wealth fund currently concerned about inflation and how central banks are managing the issue.

ADIA has increased its assets managed in-house to 54% from 50% in previous years, but at the same time reduced its workforce from a high of 1,700 in 2019 to 1,520 employees at the end of 2021. In December 2013, ADIA had 75% of its assets managed externally and only 25% internally with around 1,500 people. Simplistically speaking, ADIA has been able to manage and deploy more money internally with less headcount.

In addition, ADIA has embraced active management to be at 58% of its assets from 55%. This trend of embracing active management, even as its AUM rises, shows ADIA’s preference toward private markets such as real estate, hedge funds, infrastructure, and private equity versus fixed income and listed companies. The sovereign investor still makes plays in listed infrastructure companies.

ADIA’s Private Equities Department deployed more capital in 2021 than ever before. Direct investments accounted for 58% of the private equity unit’s overall deployment in 2021, up from 55% in 2020, with the balance committed to funds. In total, ADIA’s PE unit completed 40 direct investments in 2021, up from 25 in the previous year, including 12 co-investments in early-stage companies alongside their venture capital partners. ADIA conducted a number of growth-stage investments and was also able to source attractive off market, follow-on investment opportunities from its growing portfolio. For example, ADIA’s PE unit deployed additional capital as part of the merger of two of its portfolio companies, Constellation Automotive Group and CarNext, both digital marketplaces for used cars. ADIA remains focused on biotech companies. ADIA participated in the US$ 370 million Series B financing of Generate Biomedicines, and US$ 500 million Series B financing of Eikon Therapeutics.

Stocks and Hedge Funds
On the active management side, ADIA runs its public equity investments predominantly through the Equities Department (EQD). In 2021, this department hired some fund managers on high-confidence strategies with higher volatility profiles. ADIA did also invest in some low-volatility strategies as well. ADIA reduced its target allocation to emerging market equities and European equities, opting for U.S. and Asian equity markets. The performance of emerging market equities in some markets is being impacted by the strength of the U.S. dollar. ADIA joins its GCC sovereign wealth fund peers in investing more into the United States and being more selective European countries.

Bond portfolios were rattled in 2022, and ADIA was impacted by its exposure to government bonds, as other investors. The sovereign investor had lowered its target range for government bonds – a first time since the investor started reporting allocation ranges publicly. ADIA continues to seek to find fixed income strategies and managers that can generate alpha. In 2021, ADIA awarded a number of mandates to global aggregate bond managers.

Get News, People, and Transactions, Delivered to Your Inbox