In a move that many will view as a ‘pivot’ to the east, Abu Dhabi Investment Authority (Adia) has unveiled an office in Hong Kong, barely a year after it shut its London branch. This is the sovereign wealth fund’s first and, perhaps surprisingly, its only overseas presence following the UK closure.
The simple fact is that a local presence in Hong Kong is more valuable than one in London, said a source close to Adia, one of the world's biggest state investors. The move also reflects the fund’s steady shift to internalise more of its investment capabilities, particularly in respect of direct deals and private markets.
Still, Adia – with an estimated $792 billion under management, according to the SWF Institute – appears committed to investing in the UK, going by its £621 million ($755 million) purchase this month of a 16.7% stake in Scotia Gas.
Adia's new Hong Kong team is three-strong and led by Ngo Dong-Sinh (pictured below), formerly Hong Kong-based head of products and investment solutions at Credit Agricole’s private bank.
Now Adia’s chief representative for Asia Pacific, he reportedly left his post at Credit Agricole late last year. Prior to that, he was chief strategist for emerging markets and Asia Pacific at BNP Paribas Investment Partners.
Rounding out Ngo's team are Sun Junwei, formerly a senior economist at Morgan Stanley in Beijing, and Paul Yang, who was previously a Beijing-based vice president at BHR Partners, Bank of China’s cross-border investment platform. All three will focus on research.
Adia said in a statement that the office would bring the fund closer to its key local contacts and investments and help it identify new avenues for cooperation and growth in China and other key Asian markets.
So why choose Hong Kong over, say, Singapore as an Asia base? The source said it reflected Adia’s confidence in Hong Kong’s rule of law, financial expertise and the availability of a highly skilled and specialised workforce – as well as the fact that the city is a key gateway to China.
The fact that Adia decided it needs to be in Hong Kong but not London underscores the importance to the fund of access and proximity to China. A local UK presence is not as necessary for investing in UK or European assets as a Hong Kong branch is for doing deals in the mainland.
Indeed, one head of sovereign wealth funds at an asset management firm said he was surprised Adia had not set up in Asia earlier. Middle Eastern peers have made similar moves; for example, Kuwait Investment Authority opened a representative office in Beijing in 2011.
Certainly Adia already has large commitments in the region. Some 10%-20% of its global portfolio invested in developed Asian economies, and one would assume that allocation is likely to rise, especially given the steady opening of China’s capital markets. Some market observers believe that mainland bonds and equities could be included in global indices as early as next year, which would accelerate flows into those assets.
Adia holds $2.5 billion in qualified foreign institutional investor (QFII) quota, which allows it to invest directly in Chinese securities. The quota is thought to be fully allocated, mostly in equities. It’s not clear whether the fund is also making use of the Shanghai-Hong Kong Stock Connect to trade mainland A-shares or is among those lining up to access the onshore interbank bond market.
Ultimately, Adia’s motivation for opening in Hong Kong is similar to that in the mid-1980s for setting up shop in London, noted the source: Asia is a region with a lot of growth potential, where an on-the-ground presence is important to build relationships, understand local nuances and issues and identify emerging opportunities.
The move is also a logical extension of Adia’s push in recent years to build internal analytical expertise in areas where it sees the most growth potential, added the source.
That has been achieved in the past through frequent travelling to target markets, and will clearly continue, he noted. But the Hong Kong office will take things a step further in Asia, where the state fund sees the most immediate benefit from a local presence.
Adia is not thought to have any immediate plans for other offices.
The institution had closed the London office because it wasn’t using it any more, as all of its UK investments were being driven out of Abu Dhabi, said the source. The fund had taken the view that its business and relationships were sufficiently mature in the UK that there was no need to keep a presence there, he added.
Adia had said that the closure would have no impact on its activities in the UK. This point seems to have been borne out by the Scotia Gas purchase and the fund’s continued ownership of other substantial assets in the country.
Adia declined to comment for this article.