Abu Dhabi sovereign funds flex muscles

The combined assets of Abu Dhabi's various investment entities represent the largest state-controlled investment funds in the world. Although some of these investments, especially those in Western financial markets, have suffered in recent months, Abu Dhabi's investments are heavily diversified and it is likely that their total value is still in excess of $700-billion (U.S.).

Conceived in the 1970s as a buffer should the international oil industry falter and the domestic economy require temporary support, the channelling of surplus oil revenues into long term overseas investments, rather than simply gold or short-term paper, has become a pillar of long-term economic strategy.

Today, Abu Dhabi's assets are thought to be between $700-billion and $1-trillion, generating average annual returns of around 10 per cent. This sum dwarfs the world's other sovereign wealth funds, such as those of Singapore and Norway with $490-billion and $390-billion respectively; Abu Dhabi is also far ahead of Gulf neighbours such as Kuwait, with $260-billion, Dubai, with about $100-billion, and Qatar with a modest $60-billion. Most investments have been made through a handful of government-owned authorities or government-backed companies:

Abu Dhabi Investment Authority(ADIA)
The most prominent of Abu Dhabi's SWFs is the Abu Dhabi Investment Authority. Founded in 1976, it reached about $100-billion in overseas assets by the mid-1990s and about $360-billion in 2005. Now estimates of ADIA's value range as high as $900-billion. Although ADIA technically came under the umbrella of the new Abu Dhabi Investments Council in 2006, in practice it appears to remain fairly autonomous. Staffed by teams of foreign experts, it is thought that ADIA has historically favoured conservative investments:
Index-linked blue chip investments in the developed world are still believed to make up about 60 per cent of ADIA's portfolio, the most recent example being the acquisition of a 5 per cent stake in Citigroup; this $7.5-billion investment in 2007 made ADIA the largest shareholder in the largest U.S. bank.
As part of the same strategy the authority has been building up considerable investments in mature Western real estate, with its UK portfolio alone being valued in excess of $6-billion.
About 30 per cent of the portfolio is in emerging markets, including South East Asia and the Arab world.
On the remaining 10 per cent little information is available, although it would seem that most falls under the control of ADIA's new strategic investments department. Examples of ADIA's strategic ‘wild card' investments may include a reported $5-billion investment in Libya's tourism infrastructure.
Abu Dhabi Investment Company(ADIC)
Also now nominally under the Abu Dhabi Investment Council is the Abu Dhabi Investment Company. Established in 1977, it is the second-oldest and second-largest SWF in Abu Dhabi, believed to be in control of over $15-billion in overseas investments: ADIC specializes in North African investments, but in the last few years it has begun to diversify its interests.
Most notably, in July, 2008, it bought out Prudential's 75 per cent stake in the iconic Chrysler Building in New York.
International Petroleum Investment Company(IPIC)
Abu Dhabi's third SWF is managed by the International Petroleum Investment Company. Originally founded in 1984 as a joint venture between ADIA and the Abu Dhabi National Oil Company, it remains co-owned by the two entities, but now falls under the umbrella of the Supreme Petroleum Council. It has a fairly independent board of directors, who have built up the overseas oil-related investment portfolio to nearly $14-billion:
Some of the biggest investments have included a 17-per-cent stake in Osterreichischen Mineralolverwaltung Aktiengesellschaft, a major Austrian petrochemicals company, and a 65 per cent controlling stake in Borealis, an Austrian plastics company that has links with the Abu Dhabi Polymers Company.
More recently, IPIC has invested in the Japanese oil refining industry by purchasing a 21 per cent stake valued at $780-million in the Cosmo Oil Company.

Mubadala Development Corporation.
Abu Dhabi's fourth-largest but probably fastest growing investment arm was founded in 2002 by the soon-to-be crown prince, Sheikh Mohammed bin Zayed al-Nahyan. The Mubadala Development Corporation is staffed by members of the team involved in the early stages of the Dolphin Gas project. Many of these were handpicked for the purpose by Sheikh Mohammed, most notably Mubadala's esteemed managing director, Khaldun bin Khalifa al-Mubarak, and its chief operating officer, Waleed bin Ahmed al-Mokarrab al-Muhairi. Although Mubadala still serves as Dolphin's majority shareholder, since 2005 it has diversified considerably into a variety of other overseas investments. Most of these are overseen by its investment management group and are already believed to be worth over $10-billion:
In 2005 Mubadala purchased a 5 per cent stake worth $130-million in Italy's celebrated Ferrari car manufacturer.
Other investments have included a 7.5 per cent stake worth $1.3-billion in the Carlyle Group, an 8.1 per cent stake worth $620-million in Advanced Micro Devices, and a 35 per cent stake in Piaggio Aero, an Italian aircraft manufacturer.
In 2008, Mubadala made its biggest single investment when it began to buy up 3.3 billion dollars of shares in General Electric.

Despite major interests in Western financials and mature real estate, ADIA will remain by far the greatest of the fund managing authorities in Abu Dhabi, though ADIC and IPIC have more strategic investments in sectors less likely to be affected by the credit crunch. Although currently only the fourth largest SWF in Abu Dhabi, it is likely that Mubadala will soon overtake ADIC and IPIC to become the second-largest fund manager. It is backed by the crown prince and is currently playing a key role in developing Abu Dhabi's new industries. As Dubai continues to struggle, it is probable that some of Abu Dhabi's sovereign wealth – most likely from ADIA – will be used to buy stakes in Dubai entities, although given the sensitive nature of UAE politics it is likely that such arrangements will remain discreet.

Sovereign wealth will remain a pillar of Abu Dhabi's economy, and with neighbouring Gulf states struggling to finance their post-oil development plans in the wake of the global credit crunch, Abu Dhabi is well placed to provide assistance. The emirate's massive funds will assume an even greater role in the future political economy of the Gulf Cooperation Council.