ADIA at 40: Longest-serving employee witnessed evolution into a financial powerhouse

Hareb Al Darmaki, the longest-serving employee at the Abu Dhabi Investment Authority (Adia), recalls when the fund was so small that it shared cramped offices with the National Bank of Abu Dhabi.

News of corporate events was received by telegraphic tickers and orders for buying stocks were left to the frustrating uncertainty of the fax machine.

Mr Al Darmaki, who is Advisor in the Managing Director’s office has seen the fund grow from a start-up managing millions of dollars to a global financial powerhouse overseeing hundreds of billions of dollars. It is a feat achieved, he says, through a careful balance of discipline and bold moves such as investing in alternative asset classes like private equity and property at a time when a mix of stocks and bonds was the norm among its peers.

Affectionately known as “007″ due to the fact that he was employee number seven at the fund, Mr Darmaki says it was created at a time – 1976 – when spikes in the price of oil during the 1970s had called for a more sophisticated way of investing the Emirate’s excess revenues.

Unlike many other governments at the time, however, Abu Dhabi realised early on that its small size meant that a greater percentage of its wealth would need to be invested in international markets than was typical for the time. It was deemed too impractical, Mr Darmaki says, to try to spark the kind of industrial revolution with cheap energy as took place in Europe in the 19th century.

“Now Abu Dhabi’s diversification is taken for granted but, if we had tried to do that in the early 1970s, economists would have thought we were joking,” he says. “We simply didn’t have the markets to support it.”

Instead, the fund set out to extend its tentacles into global financial markets. That it did so as an independent entity from the Government, with purely economic motivations, was another significant innovation that ensured it remained focused on a single important goal – to preserve and grow the Emirate’s wealth.

Adia was fortunate that its creation coincided with the beginning of an extended bull market across asset classes. But its development was also the result of key management decisions at the beginning by the fund’s first leaders, most notably its charismatic Deputy Chairman Ahmed Khalifa Al Suwaidi, who ensured that the Emirate’s money was prudently invested in a diversified range of assets.

“He was a democrat, in terms of sharing all policy and decisions with staff,” Mr Darmaki recalls. “He would seek the views of everyone, whether they were experts in their field or not.”

This consensus-based approach became a hallmark of Adia’s culture, ensuring that all decisions were carefully dissected to identify potential risks before being approved.

Like many the UAE’s brightest in the 1970s, Mr Al Darmaki was sent abroad on scholarships to study. He completed his secondary education in Cheltenham, England, followed by a degree in economics and politics at the University of Bristol and a master’s degree in international studies at Johns Hopkins University’s School of Advanced International Studies in the United States.

If the financial world bigwigs at the time thought they could take rich pickings out of the newly wealthy Abu Dhabi, they quickly realised that the people running the fund were just as educated and savvy as they were.

Mr Al Darmaki says the condescension in the beginning quickly gave way to mutual respect. “They would never say it out loud but you could read it in their body language,” he says.

Initially, much of the money that Adia managed was invested through external managers in New York, London and other financial capitals of the world. Over the years, however, a growing number of those managers, such as Adia’s strategist Jean-Paul Villain, were headhunted from international financial institutions. That imported expertise, combined with the growing experience of its home-grown talent, helped to transform the fund from a boutique investment operation to a Wall Street-style financial titan.

Adia is not a pension fund, as Abu Dhabi has separate entities responsible for paying pensions. Rather its responsibility lies in ensuring the Government has the cash to meet future needs as well as investing capital for future generations, Mr Al Darmaki says.

It does not disclose the amount of money it manages but estimates range up to US$773 billion, making it easily the largest fund of its kind in the region, according to sources including London’s Sovereign Wealth Centre.

Mr Al Darmaki says the bigger the fund grew in the 1980s, the more challenging it became to make outsized returns, and the more important it became to broaden Adia’s reach and branch out more into different asset classes.

“If you have a lot of money to manage, you have to diversify,” he says. “No matter how good of an investor you are, you have to be aware of the risks of putting all of your money in one basket.”

Mr Al Darmaki took a leading role in venturing into alternative asset classes such as private equity, a form of direct investment in non-listed companies. For almost 20 years, he headed the division that made investments such as its early bet on the private equity firm Electra, a wager that garnered a five-fold return on the initial money put down on it.

Making spectacular returns is likely to be tougher for future managers at Adia, Mr Al Darmaki says, as the global economy slows and asset prices remain inflated by record low interest rates in the developed world.

“It will be more of challenge to get good returns, although that’s not to say that there won’t be financial investments that are attractive for us,” he says. “The ideal situation is to build some cash, have it ready when the market comes down and then deploy it.”

Looking back, Mr Al Darmaki still remembers fondly the days when, as one of only a small number of Adia employees, he rubbed shoulders with Abu Dhabi’s top policymakers and gained contacts and experience.

“But you have to adapt to life and how it evolves,” he says.

“Adia is like a living organism. It’s always changing.”

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Mahmoud Kassem

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