Adia cites long-term gains as equity and bond markets recover

The Abu Dhabi Investment Authority, one of the world’s biggest sovereign wealth funds, said its long-term returns in 2014 rose as global equity and bond markets inched up amid low interest rates and signs that the global economy is on the mend following years of lackluster growth.

Even though the UAE government relies heavily on revenue from oil sales to fund its budget and the local economy is expected to slow from last year, Adia said that looking forward it was optimistic that fortunes of the global economy as a whole would improve amid low oil prices and a strengthening US dollar. Crude oil, the engine of growth for Arabian Gulf countries, lost nearly half its value last year amid an increase of supply from North America and waning demand from emerging markets like China.

“The drop in oil prices will provide a boost to the economies of Europe, Japan, China, and other big net oil importers,” said Hamed bin Zayed Al Nahyan, Adia’s managing director.

“Outperformance of the US economy provides a welcome source of demand for the rest of the world. The recent evolution of asset prices – stronger US dollar, lower bond yields, and broadly steady equity prices – should work in the direction of improving economic outcomes.”

The fund, which does not invest in the UAE, had a 20-year annual rate of return of 7.4 per cent and a 30-year rate of return of 8.4 per cent as of the end of last year, it said in its annual report. That compares with 20-year and 30-year annual returns of 7.2 per cent and 8.3 per cent respectively at the end of 2013.

The MSCI ACWI Index, a free-float weighted equity index that includes both emerging and developed world markets, increased 2.1 per cent in 2014 but there were wide diverenge among geographies. While the S&P 500, the benchmark US stock index, gained 11.4 per cent, the MSCI emerging market index fell 4.6 per cent. The BofA Merrill Lynch Global Fixed Income Market Index rose 1.17 per cent in 2014.

Mr Al Nahyan judged that capital markets took in their stride the drop in oil and divergence of the economic fortunes of the economies of the US and Japan and continental Europe as well as concerns of slowing growth in Chinax.

The fund once again, as in recent years, reiterated its interest in emerging market economies despite the financial and political woes that have befallen countries such as Russia and Brazil.

“Despite evident stresses that appeared last year in several of these countries, we see grounds for optimism: China’s government continues to improve its economic governance and prepare for a wider role in global capital markets,” Mr Al Nahyan said. “New leadership in India has signalled a renewed commitment to reform and modernisation of the economy.”

Adia’s report doesn’t disclose the value of its assets although it provides a breakdown of its holdings by asset class and regions. Unchanged from last year, Adia said it invests a minimum of 15 per cent and a maximum of 25 per cent in emerging markets, unchanged from last year.

The drop in oil price has not dampened its appetite to increase its head count which rose by 10 per cent to 1650 from 1500 at the end of 2013.

The Sovereign Wealth Fund Institute estimates that Adia’s assets are worth approximately US$773 billion.

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