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Tough time ahead for sovereign fund chief

Dubai, April 5, 2010

The new head of the world's biggest sovereign wealth fund, whose appointment is expected imminently, will need to find a balance between delivering consistent returns and conservative values, say industry observers.

The top role at Abu Dhabi Investment Authority (ADIA), has been vacant since Shaikh Ahmed bin Zayed Al Nahayan, a younger brother of the ruler of Abu Dhabi, who is also president of the UAE, died in a glider plane crash last month. In its first annual review, the fund with assets of $500 to $700 billion, provided a rare glimpse into its portfolio, with an allocation of up to 85 per cent in developed markets.

Although ADIA funnelled funds from the emirate's oil exports into overseas stocks and bonds under Shaikh Ahmed, the new chief will soon find that heavy exposure to developed markets may not yield the kind of returns the fund has enjoyed over the years and will need to look at emerging markets for growth.

The fund returned 6.5 per cent on an annualised basis over a 20 year period.

'Bearing in mind macro prospects for the couple of years ahead and the low developed countries growth versus higher emerging countries growth, one challenge for ADIA will be to diversify the portfolio to capture... growth opportunities from emerging markets,' said ING Middle East and Africa senior economist for wholesale banking Dorothee Gasser.

'In spite of its sophistication, ADIA is still a government-owned entity and... thus has still to keep a certain amount of conservatism in strategies,' said Gasser.

Shaikh Ahmed, ranked number 27 on Forbes list of the world's most powerful people last year, also moved the firm's investment strategy from that of an active fund to more of a passive one, focusing more on index-tracking funds.

A succession plan for the sovereign fund has been set and will be announced within days, a source said.-Reuters




Tags: finance | Abu Dhabi Investment Authority |

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