Our Sovereign Wealth PlansMarch 19, 2008
By YOUSEF AL OTAIBA
WALL STREET JOURNAL
March 19, 2008; Page A16
Abu Dhabi, United Arab Emirates
For more than three decades, Abu Dhabi’s government investment organizations have been active and responsible participants in global financial markets. Representing patient and responsible capital, these professionally managed funds have generated outstanding long-term returns. By successfully investing the proceeds of a finite oil resource, the funds now provide an enduring annuity for the current and future benefit of the people of Abu Dhabi and the U.A.E.
But changes in global financial trends, the growth of new capital centers, and the emergence of alternative investment strategies have now precipitated questions about the objectives and methods of government investment funds. To provide reassurance, Abu Dhabi is working closely with the International Monetary Fund and other international financial institutions, governments and like-minded organizations to confirm a set of best practices.
Fundamentally, Abu Dhabi’s investment organizations are similar to pension funds, combining a strong focus on long-term capital returns with a clear benefit for the greater public good. Investment income generated by the individual investment groups has been, and will continue to be, used to improve the lives of the Emirati people.
The success in generating and wisely applying financial returns for the public good is directly linked to a clear set of principles that has guided Abu Dhabi’s investment organizations. Most basic are the focus on maximizing risk-adjusted returns, relative to well-established market indices; taking a long-term view; avoiding leverage; and investing in a well-diversified portfolio across asset classes, geographies and sectors. Furthermore, the leading investment organization, the Abu Dhabi Investment Authority (ADIA), has operated predominately as a passive investor, with the overwhelming share of its portfolio consisting of minority stakes in companies that have included no control rights, no board seats and no involvement in the management or direction of the receiving companies.
Another important principle has been to recruit and retain best-in-class financial professionals both as in-house and external managers. Notably, 80% of ADIA’s investments are managed by outside advisers. Most of ADIA’s in-house managers have also worked at leading global financial institutions in the U.S., Europe and Asia.
All of the Emirate’s investment organizations apply rigorous governance and accountability processes, with clear expectations on performance. To diversify risk and explore additional opportunities, new investment organizations have been established over time. Each of these organizations operates strictly as an individual entity, making independent, commercially driven investment decisions guided by their own strategic criteria.
Abu Dhabi’s investment organizations also meticulously follow all of the laws, regulations and rules of the countries and exchanges where they make investments, and meet all disclosure requirements of relevant government and regulatory bodies. There is acceptance of the need for increased scrutiny from governments of in-bound investments that have potential national security implications, so long as the process is clear, fair and timely. For example, Abu Dhabi’s investment organizations to date have been comfortable with the new review process in the United States, and remain committed to abiding by both the letter and the spirit of the new law.
It is important to be absolutely clear that the Abu Dhabi government has never and will never use its investment organizations or individual investments as a foreign-policy tool.
The benefits of Abu Dhabi’s approach to international investing have been widespread — not just delivering returns to the Emirate, but also to the global economy, by providing increased market liquidity, injecting capital for growth, expanding market access, creating jobs and encouraging a common global interest and commitment to mutual prosperity and prudent regulation.
To this end, even as the international community considers creating new guidelines for organizations that deploy government capital, there is a reciprocal responsibility on nations receiving these investments. The world community has a shared interest in ensuring that financial markets remain open, that investors playing by the rules are not discriminated against, and that the regulatory process remains transparent and predictable.
According to the U.S. Commerce Department, in 2006 the U.A.E. as a whole was the biggest export market for the U.S. in the Middle East and North Africa. Furthermore, the U.A.E. has a proven track record as a dependable participant in global affairs, making significant contributions to advance regional security, challenge extremism and fight terrorism. As a constituent of the U.A.E. Federation, Abu Dhabi welcomes international companies and investment and is eager to further liberalize trade regimes and grow cross-border trade.
In a world thirsty for liquidity, receiving nations should be mindful of the signals sent through protectionist rhetoric and rash regulation. The free flow of capital is as important as ever for the global economy. Nations investing and receiving government capital share a mutual interest in maintaining an open international investment climate in which all participants have confidence.
Mr. Otaiba is director of international affairs for the government of Abu Dhabi.Back to News