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ADIA Annual Review: A Step in the right direction

With over 3 trillion dollars in assets, Soverign Wealth Funds are big on the international investment scene. These funds are basically set up as a pool for surplus reserves accumulated by governments across the globe.

Until very recently (3 or 4 years ago) these investment behemoths were very discreet in what they invested in, very selective in the information that it disseminates to the public, and unfashioned in the art of transparency. However, recently the spotlight has been shone upon them.

As large sets of funds, they have a lot of bargaining power, and even greater power to guide the market, if they so wish to. That is why regulators, the IMF, and other global investors have sparked concern over the transparency of these seemingly limitless pools of money. Steps have been taken in the past two years that have made SWFs somewhat less intimidating in the international investment arena, and this creates a bit more comfort:

- The creation of a SWF international forum which is transparent about its dealings, and is basically a meeting between SWFs globally to discuss major issues facing them
- Academics have started to research and analyse these institutions much more closely and have furnished the global investor community with all of their findings, which are available online at websites such as: SWF Institute, Oxford SWF Project, International Forum of Soverign Wealth Funds and countless other sources
- The creation of the Santiago Principles, a set of Generally Accepted Accounting Principles specifically tailored to SWFs
- Almost all of the SWFs that are involved in the International Working Group for SWFs have their own websites where they periodically post press releases, where some publish financials, and where there is a chance to understand what constitutes their investments

These are positive developments that have taken place over the past 24 months, and the move yesterday by the Abu Dhabi Investment Authority "is specifically designed to demystify what is one of the world’s largest SWFs. This is all part of the process of securing legitimacy for ADIA in western markets."1 And rightly so.

They have done a good job in taking this first step, but there is a lot of work to do. I mean, the report talks about their investment strategies, their portfolio composition along with asset allocations, risk management policies, hiring criteria and standards. So in a way, we know ADIA, the biggest SWF in the world, a bit better. There is of course the fact that there was no mention whatsoever of what they are holding, and how much of it they are holding, but I guess we should be somewhat thankful for the report.

This is a good move in attracting investors to the GCC in a way, because it shows that the GCC is ready to be transparent. It is just that the GCC has been secretive for so long, and the problems that arose in Dubai at the end of last year, cast a shadow across the region as an investment destination.

I personally applaud ADIA on publishing this report and making it publicly available to all. Looking forward to similar steps to be taken by regional compatriots...



Source:
1. http://oxfordswfproject.com/2010/03/15/demystifying-adia/


Disclosure: Long select GCC equities