Page 70 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

54 PART I Background and Context

Profile: ADIA’s Massive Coffers

The Abu Dhabi Investment Authority (ADIA), established in 1976 by
the UAE’s founder, Sheikh Zayed bin Sultan Al Nahyan, has been a
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custodian of Abu Dhabi’s oil surplus for decades. Although the orga-
nization guards its privacy and its inner workings are strictly confiden-
tial, experts estimate its assets to be well above half a trillion. Morgan
Stanley believes ADIA’s assets to be a breathtaking $875 billion and
growing. 7
Like all massive institutional investors, ADIA invests in a range
of asset classes across multiple regions. A large amount of such
investors’ assets tends to be in conservative, fixed-income instru-
ments. To provide a sense of scale for the income that ADIA’s coffers
could produce, consider the following analysis. Let’s assume that
ADIA had $750 billion in assets and that two-thirds ($500 billion) of
those assets were 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 were forced
to start liquidating its assets, even half of the $750 billion estimated
total would provide more than $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 take notice
whenever (the typically low-profile) ADIA speaks up. In a 2006
Euromoney article, HSBC’s chairman, Stephen Green, acknowledged
that ADIA was one of the few institutions worldwide that the bank’s
most senior executives would visit on demand, regardless of what-
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ever else they might be doing. HSBC’s bankers are certainly not
alone in recognizing ADIA’s clout.

Better Described as “Trusts”
In addition to their size, the Gulf’s SWFs stand out for their distinct set
of purpose. The Sovereign Wealth Fund Institute defines SWFs as enti-
ties that “hold, manage, or administer assets to achieve [national]
financial objectives, and employ a set of investment strategies which
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include investing in foreign financial assets.” In the case of Gulf-based
SWFs, we would suggest a simpler characterization: Gulf sovereign
wealth funds exist to preserve and grow countries’ national wealth.
Gulf SWFs are marked by an ethos of stewardship, or responsi-
bility for ensuring the ongoing prosperity of their countries. This