Focus on Abu Dhabi: Abu Dhabi Is the Largest Emirate in Terms of Area and the Second-Largest in Terms of Population in the UAE. Its Capital, Abu Dhabi City, Serves as the Seat of the Federal Government. It Is, However, Its Economic Might That Makes It So Important to the Fortunes of the UAE, and Exercise Such Influence in the Region

By Seymour, Richard | The Middle East, July 2010 | Go to article overview

Focus on Abu Dhabi: Abu Dhabi Is the Largest Emirate in Terms of Area and the Second-Largest in Terms of Population in the UAE. Its Capital, Abu Dhabi City, Serves as the Seat of the Federal Government. It Is, However, Its Economic Might That Makes It So Important to the Fortunes of the UAE, and Exercise Such Influence in the Region


Seymour, Richard, The Middle East


ABU DHABI'S TRANSFORMATION INTO A modern, dynamic place to live and do business has been rapid. Only 50 or so years ago, the emirate scratched a living in agriculture and fishing. Where tall, gleaming buildings and man-made peninsulas for luxury living now set it apart from less wealthy neighbours, there once stood tents and, for the most well-off, mud huts.

It was not until the late 1950s that oil was first discovered beneath the desert sand. At a time when the United States and the Soviet Union were sending humans into space, Abu Dhabi got its first paved road.

As soon as it was realised that oil revenue could be reinvested in the emirate to transform its economy and society, Abu Dhabi left the world of mud huts behind, never hesitating for even the briefest backward glance.

Today, Abu Dhabi's sovereign wealth fund is the largest in the world. Its wealthiest fund, the Abu Dhabi Investment Authority (ADIA), just one of many that handle the emirate's investments at home and abroad, is estimated to be worth anywhere between $400 billion and $850 billion. The Sovereign Wealth Fund Institute, which studies wealth funds and their impacts, puts the ADIA's assets more precisely at $627 billion.

Set up in 1976, the ADIA has remained enigmatic, never publishing balance sheets nor officially confirming what it is worth. This year, however, the ADIA decided to open up a little and published its first yearly review.

This may well have been to ease investor concerns, which have deepened since the global economic downturn. The fund will have shrunk just as every other has. The question is, by how much?

The United Nations Conference on Trade and Development claimed in 2009 that the ADIA had lost $183 billion in 2008, but will have recovered much of that already as oil prices have risen and the world's economy began to grow again.

The review did not confirm or deny this. It did, though, report that the fund had averaged a return of 8% per annum for the last 30 years--6.5% over the last 20.

Though somewhat vague in its figures, the review also revealed the basic distribution of its investments with between 60 and 85% of its assets being in Europe and North America, and between 25 and 45% in Asia and other emerging markets.

Between 46 and 60% of assets are held in developed and emerging markets equities with a lower portion in small-cap equities. Up to 20% is held in government bonds, between 5 and 10% in hedge and managed funds, and around 10% in cash.

ADIA

It is hoped this new level of transparency will ease the worries of markets that were shocked at the levels of debt accrued by the neighbouring emirate of Dubai.

Seeking to reassure investors further, the report underlines the fund's independence from the government of Abu Dhabi, which owns the fund, and its commitment to making decisions based on sound economic principles and not political gain.

Sheikh Ahmed bin Zayed Al Nahyan, managing director of ADIA until his death in a glider accident in Morocco in March at the age of 41, speaking in the review clearly understood the need for greater transparency and trust when he said: "We aim to enhance understanding of ADIA in key areas such as governance, investment strategy, portfolio structure, our approach to risk and the lifeblood of our organisation--our people."

And at a time when short-term financial risk that has not paid off had led to a banking collapse, the former MD gave assurances that the fund's investment strategy is based on prudence and long-term value creation. The decline in markets around the world represented value to those with the liquidity to take advantage of it. The ADIA certainly had that; and from 2009 began the process of increasing its exposure to higher growth markets, diversifying risk and identifying long-term trends.

[ILLUSTRATION OMITTED]

The Abu Dhabi government periodically provides the ADIA with funds that are surplus to its budget. …

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Focus on Abu Dhabi: Abu Dhabi Is the Largest Emirate in Terms of Area and the Second-Largest in Terms of Population in the UAE. Its Capital, Abu Dhabi City, Serves as the Seat of the Federal Government. It Is, However, Its Economic Might That Makes It So Important to the Fortunes of the UAE, and Exercise Such Influence in the Region
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