Abu Dhabi's largest sovereign wealth fund, the Abu Dhabi Investment Authority (ADIA), has reached out to the German public in an apparent effort to distinguish itself from other Gulf funds that have been buying major stakes in the country's car makers. The leading German business daily, Handelsblatt, published a rare interview yesterday with Sheikh Ahmed bin Zayed, the managing director of ADIA, in which he reiterated the fund's policy of avoiding active management of the companies in which it invests.
"Our investment strategy is designed to produce steady returns over many years through diversification, rather than by building concentrations of risk through a few large transactions," Sheikh Ahmed said. "Rumours that circulate occasionally about ADIA planning takeover bids or looking to buy controlling stakes in one company or another are invariably a case of mistaken identity." The interview offered a rare glimpse into one of the world's largest sovereign funds.
ADIA led efforts in late 2008 to get sovereign wealth funds to adopt voluntary investment principles in Santiago, Chile, which included greater transparency. Sheikh Ahmed's interview is only the second he is known to have granted, but ADIA said the interview presaged greater communication. "It's definitely the most comprehensive thing I've seen," said Rachel Ziemba, an economist who tracks sovereign wealth funds at the economic consultancy RGE Monitor in New York.
"This could show the impact of the Santiago principles - giving a bit more visibility on how they interact with their government and target companies." But Sheikh Ahmed declined to answer questions about ADIA's size. Analysts have long estimated ADIA to be one of the two largest sovereign wealth funds in the world, ranking just behind the Saudi Arabian Monetary Agency. ADIA and its sister fund, the Abu Dhabi Investment Council, which was seeded in 2006 with capital from ADIA, are believed to manage about US$430 billion (Dh1.57 trillion) in total assets.
Sheikh Ahmed said that, after cutting its exposure to stocks in anticipation of the crisis in 2008, ADIA piled back into equity markets last year to benefit from last year's dramatic rally in global markets. "Together, these actions allowed us to beat our own performance expectations and to compare favourably with the published results of other investment institutions," he said. While ADIA is now benefiting from improving financial markets, Sheikh Ahmed warned that substantial risks remained to the global economy, in particular high government deficits, high unemployment and a growing threat of protectionism.
"The world economy is still in a fragile state, and we must not jeopardise its recovery and future economic growth by building barriers to investment and shared success." Those remarks appeared calculated to distance ADIA from other funds active in Germany, analysts said. "Sheikh Ahmed appears to be trying to reach an important audience directly through Handelsblatt. Germany has been really successful in attracting Arab investors," said Sven Behrendt, an expert on sovereign funds at the Carnegie Middle East Centre in Beirut.
"He is portraying ADIA as the older, more established institution that looks at its younger brethren with a critical eye." Another Abu Dhabi fund, Aabar Investments, paid about $2.65bn for a 9.1 per cent stake in Daimler last year and has said it planned to boost that stake to 15 per cent, making it Daimler's largest shareholder and giving it a seat on the car maker's board. Daimler's second-largest shareholder is the Kuwait Investment Authority. Another Gulf sovereign fund, the Qatar Investment Authority, announced last month it had accumulated a 17 per cent stake in the German car maker Volkswagen last year.
ADIA has generally limited its investments to more than 4.9 per cent of any one company, a policy that Sheikh Ahmed said remained. ADIA will continue to emphasise diversification in its portfolio, he said. ADIA keeps its assets distributed in fixed proportions, or weightings, among 24 classes of assets, Sheikh Ahmed said, with between 40 and 60 per cent in global stocks. It keeps between 15 and 30 per cent invested in bonds and other fixed-income securities, he said, with US Treasury bonds providing the best returns in ADIA's portfolio early last year.
The remainder is divided between property, private equity funds, infrastructure projects and alternative investments. Between 35 and 50 per cent of ADIA's assets are invested in the US, and between 25 and 35 per cent are invested in Europe, Sheikh Ahmed said, with the rest spread between Asia and other emerging markets. Countering speculation that ADIA would focus more of its investments within the region after the crisis, Sheikh Ahmed said that ADIA's focus was to invest outside the region to reduce Abu Dhabi's exposure to movements in oil prices. It also does not invest within the UAE, he said.
But Sheikh Ahmed declined to comment on one of ADIA's biggest investments, its $7.5bn purchase in late 2007 of what then amounted to a 4.9 per cent stake in Citigroup. ADIA has filed a lawsuit against Citigroup seeking $4bn in damages for alleged "fraudulent misrepresentations". Citigroup has said the case had no merit.
warnold@thenational.ae