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Abu Dhabi Investment Authority publishes its Annual Review 2021

ADIA sought out opportunities in regions and sub-regions with high potential over the long term

The Abu Dhabi Investment Authority (ADIA) recently published its Annual Review for the year 2021, which included the achievements and procedures of the authority during this period.

In a statement from Sheikh Hamed bin Zayed Al Nahyan, Managing Director of Abu Dhabi Investment Authority, he highlighted the success ADIA has made during 2021.

Sheikh Hamed said, "Historians will look back at 2021 as a year in which the global economy and equity markets delivered a broad-based recovery after the pandemic-driven lows of the previous year."

Throughout 2021, major central banks maintained highly accommodative monetary policies, keeping interest rates near zero and injecting liquidity into markets through quantitative easing. In parallel, he added that the US and other leading economies approved vast fiscal stimulus packages to soften the impact of intermittent lockdowns.

Sheikh Hamed noted, "This economic largesse served to crowd out issues that may have derailed markets in past years. These included new variants of the Coronavirus, supply chain disruptions and accelerating inflation.

"Overall, ADIA was well positioned to benefit from market conditions in 2021, delivering strong returns both in absolute and relative terms while remaining aligned with its approved risk and liquidity profile."

Within its highly diversified mandate, ADIA sought out opportunities in regions and sub-regions with high potential over the long term, Sheikh Hamed added.

The report stated that ADIA also benefitted from positioning equity portfolios to capitalise on emerging trends, including opportunities arising from differing government responses to the pandemic.

Meanwhile, ADIA continued to focus on simplifying governance structures and increasing internal agility, resulting in changes to both internal processes and departmental structure.

These steps have centralised numerous middle and back office activities to unlock efficiency gains while increasing visibility of liquidity requirements and cash management activities. Ultimately, the report said this had enhanced ADIA's ability to consider investment strategy and risk appetite at the total portfolio level.

A number of allocation ranges in ADIA's long-term strategy portfolio were updated in 2021. These decisions align with changes to regional weightings in global indices on a geographic basis and reflect the growth in private markets over recent years from an asset class perspective.

As of 31st December 2021, ADIA's 20-year and 30- year annualised rates of return, on a point-to-point basis, were 7.3% and 7.3%, respectively, compared to 6.0% and 7.2% in 2020. These increases can be attributed to a combination of both the years falling out of the calculations and performance in 2021, underlining our preference for focusing on long-term trends.

Outlook

In recent years, the authority has built internal skill-sets in areas such as quantitative and data-driven investing, while instilling a more systematic, science-based approach throughout the organisation.

ADIA is also interested in attracting new, specialist skill sets to the authority, targeting STEM (science, technology, engineering and mathematics) backgrounds and those with strong research and development experience from across industries. ADIA's objective is to foster a technology-enabled and scientific mindset, enabling it to identify, test and capture opportunities irrespective of market conditions.

As part of this ongoing process, ADIA plans to roll out multiple in-house quantitative strategies in 2022 and will continue to grow its data analytics capabilities across the organisation.

ADIA integrated climate change considerations into its investment process in 2018 and continues to assess climate-related risks within asset classes while seeking opportunities associated with the energy transition.

ADIA also plays an active role in accelerating the integration of climate change into institutional investment management processes.

Strong year

While 2021 was another strong year for returns at ADIA, it made substantial progress in implementing the organisational priorities that will underpin its continued success.

ADIA has pursued a more systematic approach to identifying and capturing opportunities.This has involved building capabilities in key areas, such as artificial intelligence, data and analytics, and instilling a more science-driven ethos throughout the organisation.

In 2021, ADIA continued to prioritise efforts to leverage the full power of its total portfolio by enhancing its ability to identify risks and opportunities at an aggregate level, and to act upon them. This enabled the development of insights that might otherwise be overlooked when viewing the world in a more narrowly-focused way.

ADIA continues to assess organisational requirements, increasing internal agility and identifying efficiency gains. As an example of this approach, ADIA reorganised several departments in 2021 and created the Core Portfolio Department (CPD) and the Central Investment Services Department (CISD).

Both new departments play a central role in supporting ADIA's total portfolio approach.

In parallel to these structural changes, ADIA made substantial progress in simplifying systems and processes to increase its ability to act quickly when identifying fast-moving opportunities.

This multi-year and ongoing effort includes increasing the autonomy of front-line managers, consolidating ADIA's technology systems through an ongoing middle and back office optimisation programme, and simplifying internal processes and governance structures, the report concluded.