ADIA’s direct private equity investments double in value in three years

Almost 40% of the sovereign wealth fund’s new commitments in 2018 were sourced by its internal team.

The value of Abu Dhabi Investment Authority’s internally-sourced direct private equity investments has doubled since 2016.

The private equity team closed 15 principal investments and several small venture capital investments last year, according to ADIA’s 2018 annual review.

The sovereign wealth fund’s endeavor since 2012 to build an in-house private equity team with direct transaction experience has gained traction: almost 40 percent of new commitments in 2018 were sourced by ADIA’s internal team, compared with 30 percent in 2017.

The fund – which does not disclose its assets but PEI data estimates to be worth $828 billion – invested $1 billion across a minority stake in the UK’s Pension Insurance Corp (PIC) and UPL Corp, the international operating unit of Indian agrochemicals company UPL.

ADIA will continue its focus on India and China, which it expects will remain important engines of growth, investing alongside local partners in “sectors that are closely aligned with the growth priorities of their respective governments”, the review said.

ADIA will continue to seek direct investments across its five target sectors: financial services, healthcare, industrials, technology and consumer.

In financial services, it will seek companies looking to transform existing assets through technology, and in healthcare it will seek companies that meet the needs of ageing populations and lower costs for overstretched healthcare systems.

In the industrial sector, ADIA will focus on sustainability around energy efficiency, food safety and security, water and waste management, as well as opportunities emerging from the growth of industrial connected devices, according to the review.

The sovereign fund has a 2 to 8 percent allocation range for private equity, or $16 billion to $66 billion.

In addition to direct investments, ADIA also committed $500 million to Kotak Special Situations Fund in 2019, according to PEI data.

ADIA considers technology to be a major trend for the next decade. “Like other investors, ADIA has been testing data-processing systems to increase efficiency and extract meaningful insights,” Hamed bin Zayed Al Nahyan, managing director, wrote in the 2018 annual review.

The fund expects that private equity firms will harness technology to improve their sourcing and diligence processes and drive growth of their portfolio companies, according to senior portfolio manager Hisham Hasan.

“Those firms that effectively implement this data‑centric strategy will likely see their competitive advantage increase over time as they build a moat of proprietary talent, data and insights,” Hasan wrote.

While ADIA expects headwinds for private equity returns because of near-record valuations and leverage metrics, the diversity and adaptability of economies should lead to resilience in the late cycle.

However, nationalism, which has gained traction at the expense of economic liberalism and could lead to the “retrenchment of globalisation”, is cause for concern, according to Zayed Al Nahyan.

Globalisation has been a dominant tailwind boosting economic growth and asset prices over the past several decades, and “it is incumbent on participants in capital markets, who see the benefits of globalisation firsthand, to present the positive case and ensure that the public debate is well-informed,” Zayed Al Nahyan wrote.