ADIA targets direct investment amid return concerns

The sovereign wealth fund, with estimated assets of $828bn, will broaden its focus in ‘rapidly developing’ Asian private equity markets.

Abu Dhabi Investment Authority, the world’s second-largest sovereign wealth fund, has increased its exposure to direct private equity investments amid warnings of a potential drop in returns.

A combination of high valuations, increasing competition and rising interest rates in the US could have a dampening effect on future absolute returns for private equity, the fund wrote in its annual report for 2016.

ADIA’s global investment portfolio reported 20-year and 30-year annualised rates of return of 6.1 percent and 6.9 percent last year, according to the review, compared with 6.5 percent and 7.5 percent in 2015. Its private equity allocation can range from 2 percent to 8 percent.

The SWF increased its exposure to the “rapidly developing” Asian private equity markets in 2016, particularly China and India. Earlier this year, the fund revealed plans to hire investment professionals with specific focus in these regions, as part of a restructuring of its private equity business designed to boost its ability to invest directly.

“[The private equities department] also sought out opportunities in the structured equity space, as a means of diversifying and reducing overall risk in the portfolio,” Hamed bin Zayed Al Nahyan, managing director at ADIA, said in the review.

The fund’s current LP commitments include to the €6.75 billion EQT VII, the €2 billon Equistone Partners Europe Fund V and the $2.7 billion Hony Capital Fund VIII.

The fund manages assets of $828 billion, according to estimates from the SWFI.