World’s biggest state wealth fund in oil-rich Abu Dhabi sheds new light with first-ever report

Abu Dhabi sovereign wealth fund starts to open up

ABU DHABI, United Arab Emirates — The Abu Dhabi Investment Authority broke with its customary privacy by issuing its first yearly statement Monday, marking one of the biggest steps yet by the world’s largest sovereign wealth fund to increase transparency.

The document, called an “annual review,” provides a rare window into the publicity-shy fund’s operations and investment strategy. A revamped Web site launching Monday aims to further humanize ADIA by including video soundbites from key players and photos offering a glimpse inside the fund’s iconic glass tower, the tallest in the Emirati capital.

The increased openness could help address Western policy makers’ concerns about the Abu Dhabi fund’s motives at a time when the neighboring emirate Dubai is under fire for a perceived lack of financial transparency amid the handling of its debt crisis.

ADIA has repeatedly said its investments, including a $7.5 billion cash injection into Citigroup Inc. in 2007, are driven by financial, not political, considerations.

“We have worked hard to develop strong relationships, built on mutual trust and respect, with governments, regulators and investment partners around the world,” Managing Director Ahmed bin Zayed Al Nahyan said in the 28-page report’s introductory letter. “We also understand that trust must both be earned over time and maintained through ongoing actions.”

The report shows that the bulk of the fund’s holdings are targeted toward conventional investments such as stocks and bonds, primarily in North America and Europe.

It does not, however, contain highly sought-after information, such as balance sheet details or the overall size of the fund’s holdings.

Analysts believe ADIA is the world’s largest sovereign wealth fund, with estimates of its size having ranged from less than $400 billion to $875 billion and beyond. The fund, like other investors, is believed to have lost considerable value during the market downturn before bouncing back somewhat over the past year.

ADIA’s report provided only limited details on the fund’s performance, listing annualized returns over the past two to three decades.

The fund said it gained 6.5 percent annually over the past 20 years and 8 percent annually over the last 30 years through the end of 2009. That compares with a gain of 6.1 percent and 7.6 percent over similar periods through the end of 2008.

The fund, the biggest of several Abu Dhabi uses to manage its oil wealth, is controlled by the emirate’s hereditary ruler. Abu Dhabi is the capital of the United Arab Emirates and holder of nearly all the OPEC member’s oil reserves. The federation as a whole is the world’s third-largest oil exporter.

ADIA’s decision to publish the report comes after it and other countries’ sovereign wealth funds agreed on a voluntary set of principles in October 2008 that called for greater openness by the pools of government-held wealth.

That move came amid scrutiny by politicians — particularly in the U.S. and Europe — concerned about the funds’ growing size and clout. Much of the criticism focused on the funds’ lack of transparency and fears that their investments could be politically motivated and give foreign governments too much control over prized companies.

“The last few years have seen a surge in the level of public and political interest in sovereign wealth funds,” ADIA’s annual review notes. “At ADIA, we recognize the importance of building a clear understanding of who we are, what we invest in and why.”

The report shows that about four-fifths of ADIA’s holdings are chosen by outside fund managers. Like many individual investors’ retirement funds, ADIA relies on tracking indexes such as the S&P 500 for about 60 percent of its investments.

ADIA’s report does not list individual holdings, but provides ranges for different types of assets. Stocks and other equities in the developed world make up the largest class, ranging from 35 to 45 percent of the fund’s holdings.

Between 35 and 50 percent of ADIA’s investments are typically in North America, and another 25 to 35 percent are in Europe, according to the report.

Rachel Ziemba, an analyst at Roubini Global Economics who monitors Gulf economies, welcomed ADIA’s latest disclosure as significant and an indication of the growing role played by sovereign wealth funds in the global economy.

“ADIA has been one of the more opaque funds,” she said. “Its opacity posed questions for recipient countries and may also have increased local pressure to spend more” at home.

Ziemba estimates ADIA’s holdings to be worth about $425 billion through the end of February.

Abu Dhabi’s funds have been gradually opening up in recent years.

In January, German business daily Handelsblatt published an interview with ADIA’s managing director, a member of Abu Dhabi’s ruling family, in which he outlined in broad strokes much of the information in Monday’s report.

Another far smaller Abu Dhabi fund, Mubadala Development Co., released a detailed financial report — its first — last April. Its 2009 report has not yet been released.

On the Net:

ADIA Web site: www.adia.ae