Ashby Monk
I decided this morning to go back through the long version (11 pages) of the Sheikh Ahmed Bin Zayed Al Nehayan interview. I wanted to see if there was anything we could learn about ADIA’s operations that wasn’t already common knowledge. While I didn’t find anything earth shattering, I did get a better sense for how ADIA invests and compensates and how it interacts with its sponsor.
Investment strategy:
“We believe in ‘active beta,’ which involves using extensive research and analysis to develop a vision of where the world is heading over the coming 10 – 15 years and positioning ourselves appropriately to take advantage of those structural trends. This is an intense process involving more than two dozen asset types with fixed weights that reflect ADIA’s vision…around 60% of ADIA’s assets are invested in index-replicating strategies.”
Zayed also said that Real Estate and Private Equity are stand-alone asset classes separate from Alternatives, which are for the most part Hedge Funds.
Compensation:
“We believe in rewarding employees based on various factors that may include beating return targets but also their broader contribution to the organization as a whole. Our compensation program has always had a smaller variable component than many investment institutions but a greater emphasis on fixed pay and various other benefits. This keeps us competitive in attracting world class talent, but also encourages our employees to focus on what’s best for ADIA over the long-term rather than looking for ways to boost their short-term personal gains.”
In short, they aren’t paying out huge bonuses this year. They may be implementing a strategy similar to the Canada Pension Plan, which averages its bonus calculations out over four years. Still, I wonder if the above will attract and retain the best people. I’ve heard many ME SWFs already have trouble attracting top talent. Is this type of policy going to make it harder for ADIA?
Sponsor:
“…the Abu Dhabi government can, at any time, request funds from ADIA to meet its short-term needs, and this has happened a few times in our history. But how and for what purpose those funds are used is strictly a private matter for the government.”
Like all SWFs, ADIA is a self-insurance policy for the Abu Dhabi government. However, because of its lack of transparency, it is impossible to know how the government has used the fund. In my opinion, there is no reason to be this secretive. After all, ADIA still won’t say how much money they have or what their investment return has been over its history. Why? Nonetheless, the above is a good start in opening up.
