H.H. Sheikh Hamed bin Zayed Al Nahyan: ADIA 2013 Overview
On the occasion of the Abu Dhabi Investment Authority, ADIA, publishing its 2013 ADIA Review yesterday, the following is a transcript of the introduction by H.H. Sheikh Hamed bin Zayed Al Nahyan, Chief of Abu Dhabi Crown Prince's Court and Managing Director of Abu Dhabi Investment Authority, ADIA.
H.H. says, "2013 was a year of continued consolidation and growth for ADIA, both internally, in the way that we organise ourselves and fulfil our mission, and in the markets where we invest.
We continued to build out selected investment and non-investment teams, while further enhancing alignment and collaboration across the organisation.
We also conducted a refresh of the ADIA brand, of which this, our fifth edition of the ADIA Review, is the most visible manifestation. As with everything ADIA does, the changes you will see represent an evolution rather than a drastic shift in direction.
"We recognise that change is inevitable, indeed necessary. As long-term focused investors, it is our responsibility to identify and position ourselves for upcoming trends in the markets that we invest in. However, we are also profoundly conscious of the need to remain prudent and disciplined in all that we do, in order to fulfil the mission with which we have been entrusted for almost 40 years.
In an ever-changing world, ADIA s approach must be one that emphasises continuity over short-term gains. It is this careful balance, of discipline, and flexibility, which is reflected in the look and feel of the document you are reading today and which drives our vision for ADIA s future, encapsulated by two words: Real Progress.
"Over recent years, ADIA has taken steps to further enhance its internal capabilities, as well as the systems and processes that support them.
This process, which continued in 2013, has resulted in a number of significant changes across the organisation. We have built out our investment teams in the illiquid space, such as real estate, infrastructure and, more recently, private equity, adding considerable expertise across geographies and asset specialisation. These efforts have strengthened ADIA s ability to take a holistic, global view of its investments, while also allowing us to target more specific opportunities with attractive return characteristics.
"As our investment approach has evolved, so has the need for professional teams that are able to support our investment talent in a way that is seamless, efficient and tailored to their specific needs. The creation of our Investment Services Department in 2010 was an important milestone in this process, bringing together a number of back office activities under a single umbrella, including a substantial centralised risk function comprised of leading professionals in their field. Together with individual risk managers located within all investment departments, they ensure that ADIA anticipates and responds quickly to potential obstacles or issues.
"In 2013, ADIA s Accounts Department implemented a restructuring and refocusing of its activities, with the goal of becoming an increasingly effective partner to ADIA s investment teams. By listening carefully to their needs, the department has tailored its analysis and reporting to provide valuable insights to ADIA s investment professionals and decision-makers.
"Information technology plays a critical role in the effective function of an organisation with ADIA s scale and complexity. Last year saw us continue a build-out and reorganisation of our IT Department that will align its services and individual skill-sets with the exacting requirements of different investment functions.
"During times of change, it is ADIA s people who implement our mission and drive our culture. It is only through their combined contributions that we have achieved our goals for the past four decades. 2013 marked the first full year of ADIA s Year One Graduate Programme for U.A.E. National recruits, and I am proud to report that this resulted in 16 of our graduate recruits passing Level One of the Chartered Financial Analyst (CFA) exam. The achievements and hard work demonstrated by this new generation of talent provides me with great confidence that ADIA s mission will continue to be fulfilled in the years to come.
"Finally, and on a more sombre note, in 2013 we sadly lost one of ADIA s leaders and a true embodiment of the ADIA culture, Dr. Jua'an Salem Al Dhaheri. During his 36 years at ADIA, Dr. Jua'an served in numerous roles including, mostly recently, as a member of ADIA s Board of Directors and Deputy Chairman of the Investment Committee. Dr. Jua'an is deeply missed by his colleagues and Abu Dhabi as a whole." 2013 Market Review "Over the past year, the global economy transitioned from recovery to ongoing expansion. Global equity prices neared pre-crisis peaks, although with considerable variation across markets.
Monetary policy in the U.S. and U.K. laid the foundations for the process of unwinding crisis-driven stimulus measures, while fiscal policies largely returned fiscal deficits to levels closer to historical norms.
"2013 was another good year for equities, at least across developed markets. Measured in U.S. dollar terms, stocks gained more than 30% in the U.S. and over 25% in both Japan and Europe. The main driver of these gains was the expected impact on future corporate earnings of better-than-anticipated growth, especially in Europe where economies began to emerge from recession during the summer. In the U.S., fears that fiscal tightening would derail growth proved unfounded. At the same time, gains in Japan were supported by a major shift in economic policies aimed at boosting economic performance through aggressive monetary expansion and structural reforms.
"These better outcomes led markets to question whether the stimulative policies put in place since the global financial crisis could be nearing their turning point. Such concerns were most apparent in the U.S., where the Federal Reserve began considering how and when to finish its programme of bond purchases. Bond markets found this combination of better growth and reduced policy support worrisome: yields across developed markets jumped in the summer, and global indices ended the year with small losses the first negative total returns in 20 years.
"Emerging markets proved especially sensitive to signs that monetary stimulus may have peaked. Low yields in the developed world had encouraged capital to flow to emerging economies in search of better returns; a reversal of these flows depressed currencies across the emerging world, especially in those countries that had large current account deficits. In addition, emerging economies generally delivered growth outcomes in line with or slightly below expectations.
"Even in China, which was able to maintain economic growth around 8%, markets were unable to sustain upward momentum." Outlook "Looking forward, trends that have emerged over recent years appear likely to continue: global economic growth will increasingly be sourced from emerging economies; the developed world will gradually repair the damage wrought by the financial crisis; and fears of a relapse into crisis will give way to an understanding of the likely contours of a new economic expansion.
Despite short-term setbacks, emerging markets, and particularly China, are likely to play a much greater role in this global growth cycle than ever before.
"For global investors, this of course raises the profile of economic management in these countries. China is in the midst of a historic shift in its economic governance that will likely result in a loosening of administrative controls and allow markets to play a larger role in allocating capital. This approach will allow China to consolidate its economic growth achievements and extend them into an increasingly modern and dynamic economy. The path may not be smooth, but the way is clear.
"Beyond China, the emerging market world is becoming far more diverse, and less easy to classify. Meanwhile, the developed world remains critically important to global investors as it is still the primary source of high-quality, investable financial assets, and continues to set the agenda for economic policies and regulation. Developed economies have healed most of the acute wounds from the financial crisis, but the legacy of that event will remain with them for many years.
"Three important areas of work still stand: 1. Repairing the supply side of major economies: millions remain unemployed; with skills and confidence eroding while capital spending remains very weak, hindering the diffusion of new technologies.
2. Building a new framework of financial regulation: the rules of the past were unable to prevent the financial crisis. New rules are now being written that focus on increasing capital in banks and building barriers between systemically important activities and proprietary trading. These issues are highly complex and investors must be prepared for the possibility of unintended consequences.
3. Improving fiscal health: governments have made surprising progress in reducing their deficits. But levels of debt remain far higher than at any point in peacetime history. Slow growth and low inflation are tough obstacles to reducing debt/ GDP ratios and it remains essential to prepare public finances for an inevitable future economic downturn.
"Navigating a global asset portfolio through these cross-currents brings with it certain challenges. Our experience suggests that the formula for success will not be found in trying to predict future events or positioning ourselves to avoid the next crisis or bubble. Instead, as a long-term investor, our focus will remain on understanding the implications of the few major trends that are driving the global economy, and building balanced, diversified exposures that allow us to fulfil our mission of delivering consistent financial returns over time." This ends the transcript of H.H. Hamed bin Zayed Al Nahyan's overview.