SOVEREIGN REPORT

ADIA boosts private equity as it seeks opportunities in challenging market

The Mideast’s largest sovereign wealth fund revealed a flat rate of return and increased exposure to China data centers in its 2022 annual report

The ADIA building on the Corniche in the UAE's capital. (ANDREW HOLBROOKE/GETTY)

ABU DHABI, United Arab Emirates – Sovereign wealth fund Abu Dhabi Investment Authority is increasing its allocation in private equities and eyeing investment opportunities in energy transition and technology. 

ADIA, which re-invests oil revenues outside the UAE on behalf of the Abu Dhabi government in equities, fixed income, infrastructure, private equity and real estate, released its 2022 annual report today. The fund increased the allocation range for private equity to 10%-15% of the total portfolio, from 7%-12% in 2021. 

The sovereign wealth fund, the biggest in the Gulf and fourth-largest in the world, has estimated assets of $993 billion, according to Global SWF, a figure that is more than four times the size of Abu Dhabi’s economy in 2022.

As of December 31, 2022, Adia’s 20-year and 30-year annualized rates of return, on a point-to-point basis, remained flat: 7.1% and 7% respectively, compared with 7.3% and 7.3% in 2021, according to the report.

ADIA is finding public equities are more attractive after the 2022 market correction, spurred by high inflation and increased interest rates. It is also looking at the private credit market amid a more cautious lending environment, according to Managing Director Hamed bin Zayed Al Nahyan. 

“Equities – both public and private – should continue to find support, especially if profitability remains resilient despite lingering tensions in supply chains and the availability of labor,” Al Nahyan wrote in the report.

Remarking on the challenging economic environment, Al Nahyan singled out infrastructure and the energy transition as investment opportunities.

“The new landscape may also increase the appeal of physical assets and alternative approaches that are better suited to managing inflation risk. One positive consequence of this trend may be greater alignment between investment goals and societal imperatives. Over time, global investors have played a vital role in supporting and accelerating social progress and this is expected to continue. One example is investment in infrastructure projects, where estimates suggest that more than $3 trillion a year is needed to support global economic growth aspirations and provide citizens with essential services. Importantly, this includes ventures aimed at accelerating the energy transition.”

“Looking ahead, [private equity] is positioning for the continued growth of private equity markets including private credit as an increasingly important alternative to traditional bank lending,” according to the report.

The fund, which rarely discloses asset activity, outlined some of its private equity transactions last year, reporting a “roughly equal” allocation between direct investments and funds, alongside an increased allocation to secondaries. 

ADIA’s private equity department completed 24 direct investments of more than $150 million, in line with 2021. In industrials, ADIA supported the merger of e-commerce and logistics automation firms MHS Global and Fortna. It also acquired a stake in Emerson’s Climate Technologies, a leading player in HVAC and refrigeration end-markets. 

In financial services, the department “continued to focus on multiple themes, including insurance brokers and digital transformation, while remaining mindful of valuations in the sector.” 

The department led the funding round of US insurance broker Acrisure. It also invested in Merchants Fleet, a leading provider of fleet management services. 

ADIA revealed a “more difficult” period for consumer private equity. Despite this, the department invested in AmeriVet, which partners with veterinarians across the U.S., and in McWin, a platform of European quick service restaurants. 

In healthcare, ADIA made private equity investments in China including American Sino, a provider of premium private healthcare services; Taibang, a provider of bloodplasma products in China; and early stage biotech company Sironax. 

ADIA also noted an increase in take-private transactions, including that of U.S. Zendesk, a provider of software for customer service management. 

The fund has undergone a restructuring over the last several years, Reuters reports, combining middle and back office activities and centralizing processes. Last year, it separated its infrastructure and real estate investment teams into standalone departments.

The changes have resulted in a reduction in its workforce to 1,380 at the end of 2022, the report showed, down from 1,520 reported in its 2021 review.

ADIA is also building out a quantitative research and development team to integrate artificial intelligence and investment decisions. It currently has more than 50 on this unit’s staff and is still recruiting, the report said.