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Abu Dhabi Investment Authority expands exposure in alternative investments

Monday, September 19, 2011
Opalesque Industry Update - The Abu Dhabi Investment Authority (ADIA), an investment institution owned by the Government of Abu Dhabi which runs one of the largest sovereign wealth funds in the world with assets estimated between US$650bn and $875bn (the Sovereign Wealth Fund Institute puts the figure at $627bn) is expanding its exposure in alternative investments, according to its latest Annual Review report.

Emerging managed futures managers
Among the major developments in ADIA’s alternative investments portfolios is the funding of several early-stage or emerging managed futures managers. ADIA’s Alternatives Departments, which is handling the alternative investment portfolio, is focused on migrating these newly-seeded funds to their main managed funds portfolio, granting that the new funds expect their performance targets.

“These new managers will sit within a small portfolio launched in 2009 whose purpose is to identify possible strong performers of the future,” the report says.

It further explains that Alternative Investments Department is mandated to invest in non-traditional assets and employ strategies that reduce volatility and the correlation of ADIA’s overall portfolio to broader fixed income and equity markets.

The Department is divided into three divisions which are the Managed Futures (external and internal), Hedge Funds (external) and Commodities (external). It employs competent and highly-professional portfolio managers and analysts to identify and appoint the most suitable investment managers who fit its mandate and monitor and evaluate their performance on a regular basis. Managed futures, also known as quantitative trading strategies, involve trading fixed income, equity, currency and commodity markets.

Hedge Fund Research’s HFRX Quantitative Directional Index was down 3.09% (est.) in August (-3.18% YTD) and the HFRX Commodity Index lost 0.21% (est.) (-2.35% YTD).

Attracted with the positive prospects in agriculture, ADIA disclosed that it is also widening its exposure in the sector. ADIA’s Active Commodities division is tasked to invest in a variety of commodity-related strategies which objective is to capture excess returns from the commodities market without a directional bias. The portfolio includes both long and short strategies as well as relative-value strategies.

“In commodities, meanwhile, the mandate overseen by the Active Commodities team was restructured to emphasize ‘alpha’ capture. This involved broadening the range of assets in which we invest to the entire range of commodities on a long / short basis, compared with our previous focus on agricultural commodities in directionally long-biased portfolios,” the report adds.

ADIA’s move to diversify its investments in commodities jives well with global trend as commodities funds bucked the market rout in August and posted positive gains, thanks mainly to gold’s outperformance.

According to ADAI, commodities have remained highly correlated with global macro developments, such as changing expectations of economic growth and sovereign risk. This resulted in price swings during the year, with significant declines in the second quarter due to concerns about European sovereign defaults followed by an even sharper rebound in the latter part of the year as these fears receded. While different commodities were naturally influenced by different supply-demand fundamentals, precious metals such as gold, silver and palladium also benefited from the ongoing global debate about quantitative easing.

A report by Bloomberg showed that commodities hedge funds, including Orix Investment Corp., Superfund and Four Elements Capital Management Pte weathered last month’s financial market rout brought by the U.S. sovereign downgrade and Europe’s deepening debt crisis trading gold which reached record high prices. The Orix Commodities Fund gained 3.5%, and Superfund Blue Gold jumped 13.45% last month. Gold investments in the Earth Element Fund returned 1%, helping trim losses in the fund.

The Abu Dhabi Investment Authority (ADIA) was established in 1976 to of invest funds on behalf of the Government of Abu Dhabi. It is a globally diversified investment institution that is highly diversified across more than two-dozen asset classes and sub-categories, including quoted equities, fixed income, real estate, private equity, alternatives and infrastructure. ADIA is not compelled to adhere to the Islamic Sharia because of the nature of its investments.
- By Precy Dumlao
(Edited by BG)

See our last article on ADIA (March 2010):
Opalesque Exclusive:ADIA invests 10% of its estimated $425bn in assets in hedge funds and managed funds Source

Today's Opalesque Sovereign Wealth Funds Briefing can be found here: Source. You can subscribe to our free daily or weekly briefings here: Source


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