* Cuts exposure limits on developed market stocks
* Reduces minimum asset exposure to Europe
* Fund lowering reliance on external fund managers
* Returns rose to average 7.6 pct pa over 20 years
By Dinesh Nair
DUBAI, May 27 Abu Dhabi Investment Authority is
reducing target exposures to developed market stocks and looking
for growth in emerging markets, the sovereign wealth fund that
is one of the world's biggest investors said on Monday.
In an annual review which provides rare insights into the
strategy of ADIA's executives, it also gave an ominous signal to
asset management firms hoping for its business - it is handling
more of its investment in-house and relying less on index funds.
With undisclosed assets that analysts estimate at between
$400-$600 billion - equivalent to about 1 percent of the value
of the world's major stock exchanges - ADIA revealed the first
change in the broad ranges it maintains for different assets
since it began publishing an annual review three years ago.
It lowered its target exposure to developed market stocks in
2012 to a range of 32-42 percent from 35-45 percent in 2011 -
meaning a reduction at the middle of that range of 7.5 percent.
ADIA also cut its minimum exposure to Europe across its
asset portfolio to 20 percent in 2012 from 25 percent in 2011,
while keeping its maximum allocation unchanged at 35 percent.
Funds with long-term objectives shift such broad target
ranges only rarely, given the flexibility they already offer.
ADIA, which manages the surpluses the Gulf emirate earns
from oil exports, maintained its exposure to emerging market
stocks in a 10-20 percent band but signalled a growing interest:
"Economic leadership is passing to emerging markets, not
just as their weight in the global economy passes 50 percent,
but as their share of likely future global growth moves far
higher," Sheikh Hamed Bin Zayed al-Nahayan, ADIA's managing
director and a member of the ruling family, said in the review.
The fund raised its exposure limit on Chinese equities to
$500 million from $200 million in the third quarter, ADIA said,
after securing the approval of the Chinese market regulator.
Sovereign wealth funds generally are focusing on emerging
markets and alternatives to traditional securities, such as
infrastructure investment and private equity, to offset lower
growth prospects and greater volatility in established markets.
At the end of a year of gains in world equities markets, the
review showed that ADIA had made a return of 7.6 percent on an
annualised basis over the 20 years to Dec. 31, higher than the
6.9 percent recorded a year earlier. Over 30 years, its return
was an annualised 8.2 percent, up from 8.1 percent in 2011.
ADIA said it expected equities to remain attractive as bond
yields stayed low and investors prepared to take on more risk.
It had started allocating money to non-investment grade
bonds and was looking for external managers for such assets.
ADIA said about 75 percent of its portfolio was run by
external asset managers, down from 80 percent in 2011. The fund
also allocated 55 percent of its assets in index-replicating
strategies, lower than the 60 percent it allocated in 2011.
That could be a worrying sign for big global fund managers
who market some of their flagship products to the likes of ADIA.
It may also offer Abu Dhabi a tighter control on costs.