Abu Dhabi Investment Authority (Adia) has been steadily raising its allocation to direct private equity and private credit and to Asian PE assets, particularly in China and India, said the sovereign wealth fund in its annual review, in which it set out its views across asset classes.

Adia has also been steadily adding to its private equity team, including executives with direct transaction experience, as well as regional and sector specialists, but did not provide specific numbers. The fund’s overall headcount grew slightly from 1,700 in 2015 to 1,750 last year.

And on the fund investment side, the PE division last year looked to increase its focus on "core relationships which have consistently supported its strategy".

Last year Adia set up an office in Hong Kong – its first in Asia outside the Middle East – and appointed a new global head of private equities, as it continued to boost its focus on direct and co-investments.

The public fund, which allocates 2% to 8% of its AUM to private equity, said greater inflows were expected into private equity as institutions, particularly in Asia, increase their exposure to the asset class.

However, while the annual review said the latest available data suggested it had posted a “solid performance” for its PE investments in 2016, Adia envisaged things proving trickier in the coming years. Returns may be dampened by a combination of high valuations, increasing competition and rising US interest rates, it said. This reflects concerns voiced by other investors.  

Public equity activity

On the public equity side, Adia’s internal equities team – which runs its in-house portfolios – has doubled in size over the past three years, but AsianInvestor could not ascertain a precise figure for the headcount. Last year there were new appointments to the US, Europe, emerging Europe and South Africa, Japan, high-conviction global alpha, equity opportunities and support teams, said the review.

  Adia's portfolio allocation (click for full view)

Outlook-wise, Adia said it had a slight bias toward developed-market equities, pointing to possible headwinds for emerging markets in the form of a strong dollar and concerns about US protectionism.

The fund argued that small- and mid-caps may outperform large-caps, especially in the US, due to their more domestic focus, relative lack of dollar risk and the likely positive impact of tax cuts. It also saw financials as attractive in both Europe and the US, as they benefit from rising rates, a reversal in regulation and a largely domestic currency exposure.

Real asset moves

In respect of real estate and infrastructure, Adia said its pace of acquisitions slowed last year “along with the maturing cycle” and citing greater political risk around such assets.

The fund said in 2016 it had increasingly targeted investment platforms – that is focusing on a business that is growing its exposure to a sector – as an alternative to pursuing asset-specific auctions, where prices continued to rise in certain sectors and geographies.

Adia cited as examples a second investment in Indian renewable energy company Greenko and an agreement with Chilean toll road operator Abertis to invest in its roads platform.

Looking ahead, the review struck an optimistic note about the real asset sector. “The prospects of a political shift in favour of fiscal policy over monetary policy, with a particular emphasis on infrastructure spending, may help to underpin further growth in the year ahead.”

Tech trends

Overall, the most exciting trends on the horizon involve innovation and new business models, said Hamed bin Zayed Al Nahyan, managing director of Adia, in his letter prefacing the review. He cited technologies such as 3D printing, big data analytics and biotechnology, suggested they were “opening up a new landscape of more customised production”.

Earlier in his letter, Al Nahyan had pointed to the benefits of globalisation and expects this trend to continue. This is despite efforts by US president Donald Trump to restrict international trade and Britain’s vote to exit the European Union.

“Risks of protectionist policies have increased, but we also note staunch defences of free trade amongst the global community,” said Al Nahyan. “We continue to view openness to trade and capital flows as beneficial and expect this perspective to be an effective counter to efforts to rebuild barriers.”