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What's in ADIA's $850Bn Portfolio? Investing Insights & Lessons for Investors

What's in ADIA's $850Bn Portfolio? Investing Insights & Lessons for Investors
Image by: Johannes Plenio

How does Abu Dhabi Investment Authority currently invest and why is this relevant to you?

When it comes to investing, we often turn to some of the best investors out there for inspiration;  to many, Warren Buffet is the name that immediately comes to mind. However, Warren Buffet’s net worth of $100Bn+ pales in comparison  to the assets under management of some of the largest institutional investors out there. Let’s take the Abu Dhabi Investment Authority (“ADIA”) as a great example, which happens to manage circa $850 billion.

What is the ADIA?

Established in 1976, ADIA’s mission is to sustain the long-term prosperity of Abu Dhabi by prudently growing capital.  

Essentially, ADIA has a mandate to protect the long term value of their sovereign capital, after taking inflation into account, in addition to generating growth.

As financial advisors, we’ve seen that the majority of our individual affluent clients have extremely similar goals: preserving their wealth over long periods of time, keeping up with inflation, and generating a reasonable income or growth to sustain their lifestyles. Considering the similar objective a sovereign wealth fund has to an affluent investor, lets look at how the ADIA allocates its entire assets.

Where is the $850Bn?

Asset Allocation

ADIA makes sure it works in bands or ranges. Therefore, it sets a minimum investment in a specific asset class and a maximum that it would never be willing to allocate over. See below the image taken directly from their public source.

Source: ADIA

Notice that the minimum that ADIA will never allocate under when it comes to overall public equities is 40%. By definition, their worst view on the performance of equities results in an absolute minimum allocation of at least 40%.

On the other hand, even if they believe that this is the best time to allocate towards equities, they would never allocate more than 62% in this one asset class.

Having their highest allocation being towards public equities is not unique to ADIA; the majority of sovereign wealth funds and astute family offices have pretty much identical approaches. The underlying reason for this approach is the understanding that the best way to own the global methods of production and diversify it is through the public equity market. By allocating here, investors are able to own all different types of industries and a diverse set of competitors within those sectors.

Cash & Real Estate Holdings

ADIA does not at any point hold more than 10% in cash holdings — regardless of their view on markets and regardless of how high short term interest rates can get. The rationale here is that since their goals are long term in nature, cash does not have the highest allocation given the fact it loses value over time. If they want to allocate towards fixed income, they do so by locking up yields for longer periods within government bonds or credit (i.e. corporate bonds).

ADIA also does not allocate more than 10% of their holdings in Real Estate, which is illiquid, difficult to diversify, and historically performs less than its asset class peers. Real Estate for such an institution is seen as a diversifier and not a main asset allocation.

Geographical Distribution

Now that we know what types of assets ADIA is holding their capital, let's look at where these assets are based.

Source: ADIA

ADIA’s heavy allocation towards North America is also not unusual by any means. Given that most global companies are based out of the United States, taking exposure to this one market also means taking exposure to global markets (more than 40% of the revenues of the largest 500 companies in the US are sourced from abroad).

Next Steps

With this in mind, we recommend taking a look at your own asset allocation and asking yourself how far away you are from ADIA’s and whether that discrepancy is justified for your objectives.

We’re more than happy to hear your thoughts and discuss any of this in much more detail. In the meantime, we will leave you with a quote from HH Sheikh Mohamed Bin Zayed Al Nahyan:

“The question is, 50 years from now… after we have loaded the last barrel of oil, are we going to feel sad? If we invest wisely today, I think we will celebrate that moment.”

You can think of this same concept as you plan your retirement or the last day of receipt of your primary source of current income for you and your family.