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Abu Dhabi’s top sovereign fund ADIA deepens internal shift, sets eyes on future

Published: Updated:

Abu Dhabi Investment Authority’s latest transformation took shape in the depths of the pandemic, when grounded executives spent several weeks jotting ideas on white boards in the wealth fund’s high-rise headquarters.

The enforced pause in normal business helped to turbocharge ADIA’s ongoing review of its business, leading to some of the most sweeping changes ever seen at the 46-year-old, $829 billion sovereign wealth fund. Not only did ADIA overhaul its internal structure and processes, it redefined how it would take future investment decisions.

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Due to its sheer size, ADIA’s choices can have an impact around the world. It is one of the biggest investors in US real estate, and its recent deals include stakes in German railcars, North American energy, and Indonesia’s biggest internet firm. It’s eyeing even more opportunities in private markets.

“Competition for returns has intensified, but the entire business of investing is being transformed by technology and that is an ongoing processes that is influencing all parts of the industry. And this will continue to change and at an increasingly fast pace, according to an emailed response from a spokesman for the fund.

“That’s why we identified the need to become more dynamic and agile, as a way to build flexibility into our organization so that we are ready to respond to these changes,” he said.

In the past two years, investment teams focusing on Japanese, Latin American, South African, and emerging Europe stocks at the fund have been shut down, with their mandates outsourced to external managers or passed to internal passive funds. ADIA merged its internal and external equities department into one.

Even more striking was the launch last year of an in-house science lab, staffed with quants, physicists, artificial intelligence, and computer experts recruited from hedge funds or academia. It was a statement of intent about pivoting to data-driven and analytical investing, something other leading sovereign funds such as GIC Pte and Temasek Holdings Pte have also been exploring.

And the changes keep coming. Last year, ADIA set up two new centralized functions and trimmed its middle and back offices. It recently also separated the real estate and infrastructure departments, which are both gaining in importance as the fund looks increasingly to private markets.

The net result of all these changes was a loss of 160 people, or almost 10 percent of the fund’s workforce, in 2021.

The spokesman said ADIA has started to review how it operated in 2019. “The conclusion was that the external environment is fundamentally changing, with long-lasting consequences,” he said.

“Sources of return will be harder to find and harder to execute at scale in the future. The window to identify and act on opportunities is growing increasingly narrow, as rapid advances in technology continue to transform markets. Efficiency, agility, and speed are now the characteristics for successful investors of all types –- including those with long-term objectives,” the spokesman said.

New hires

ADIA was set up in 1976 to manage the oil surplus revenues of Abu Dhabi, one of the world’s top crude exporters. It’s the biggest sovereign wealth fund in the city, eclipsing Mubadala Investment Co. and ADQ, and one of the largest in the world.

It’s not the first time the fund has gone through a period of adjustment. In the 1980s, it was among the first institutional investors to add hedge funds and private equity. Almost a decade later, ADIA introduced a formal asset allocation process to ensure diversification, which it still uses today. About 15 years ago, another important change was to rely less on external managers and instead develop in-house investment capabilities.

Despite the headcount reduction last year, ADIA is preparing to hire again: its private equity investment team plans to double from its current figure of 60 in the next three years, the spokesman said.

The science lab, known formally as the quantitative research and development department, now has 50 people and is still recruiting.

The restructuring set up a Core Portfolio Department that’s now handling activities that were previously managed across four separate units: it is responsible for implementing ADIA’s benchmark exposures across equity and fixed income markets, managing all treasury related activities and executing all equity, fixed income, money market, and currency trades.

Meanwhile, the Central Investment Services Department was set up last year to eliminate duplication and improve the fund’s internal workings.

“Taken together, all of these initiatives have combined to unlock efficiency gains, while increasing ADIA’s speed and internal agility,” said the spokesman.

Read more: Abu Dhabi financial regulator issues discussion paper on Decentralized Finance ‘DeFi’

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