Page 237 - Aamir Rehman - Dubai & Co Global Strategies for Doing Business in the Gulf States-McGraw-Hill (2007)

Capable Capital: The GCC as a Source of Capital 219

There are, of course, many measures that governments can
undertake to manage income in the face of rising budgetary pressures.
One that is being used heavily is investment in income-yielding secu-
rities. GCC states have for decades been applying much of their
surpluses to the purchase of US Treasury bills and other fixed-income
instruments that guarantee an annual return. They have also been
investing in dividend-yielding equities, although this has been with a
smaller proportion of the total surplus. The size and clout of sovereign
investment arms in the region—as well as their ability to support gov-
ernment spending—should not be underestimated. A prime example
is the Abu Dhabi Investment Authority (ADIA), widely acknowl-
edged as one of the world’s most important institutional investors,
which is single-handedly able to support a huge proportion of Abu
Dhabi (and UAE) government spending for years to come if need be.

ADIA’s Massive Coffers

The Abu Dhabi Investment Authority (ADIA), established in 1976 by
the UAE’s founder Sheikh Zayed Al Nahyan, has been a custodian of
Abu Dhabi’s oil surplus for decades. Although the organization is
highly opaque and its inner workings are strictly confidential,
experts estimate its assets to be well above $250 billion, and probably
over half a trillion dollars. Morgan Stanley believes ADIA’s assets to
be a breathtaking $875 billion and growing. 12
Like all massive institutional investors, the ADIA invests in a
range of asset classes across multiple regions. Typically, the bulk of
such investors’ assets tends to be in conservative, fixed-income
instruments. To provide a sense of the scale of income the ADIA’s
coffers could produce, consider the following analysis. Let’s
assume the ADIA had $750 billion in assets and that two-thirds
($500 billion) was in bonds yielding 5 percent per year. The income
from those investments alone would be $25 billion per year—or
$6,000 per person living in the UAE. If, in a severe crisis, ADIA was
forced to start liquidating its assets, even half of the $750 billion
estimated total would provide over $350,000 per UAE citizen.
ADIA’s assets are, therefore, a tremendous cushion of fiscal security
for the emirate and for the broader UAE.
It is not surprising that global bankers sit up and notice when-
ever the (typically low-profile) ADIA speaks up. In a 2006