Abu Dhabi Investment Authority (ADIA), the world's third-biggest sovereign wealth fund, plans to increase active investments in fixed-income in the coming years, reducing its reliance on passive investments.
The move comes as ADIA, which manages the reserves of oil-rich Abu Dhabi, has been reducing its reliance on external fund managers and boosting in-house investment capabilities.
Some 55% of ADIA's portfolio is managed by external managers, down from 60% in 2016, with the rest managed internally.
ADIA said in its 2018 annual report its fixed income and treasury department aimed to go fully active in the coming years, with fund managers making "active" decisions on where to invest rather than "passively" following a benchmark index.
Currently the department's strategy is to be 40% active and 60% passive.
During 2019, as part of the transition, the department plans to add a number of new positions, mostly investment and research-focused roles.
"This provides our investment professionals with the flexibility to allocate funds between different asset types according to where they see opportunities," it said.
ADIA said decisions in early 2018 to reduce exposure to credit and being overweight on the U.S. dollar had benefitted its performance during the year.
ADIA has been consolidating a number of investment portfolios since 2017.
It does not disclose the size of its overall portfolio, but according to the Sovereign Wealth Fund Institute, ADIA manages around $700 billion in assets, ranking it behind the Norwegian sovereign fund and China Investment Corp.
ADIA said it took a decision last year to formally integrate climate change considerations into its investment proposal review process.
It worked alongside five global sovereign wealth funds (SWFs) to develop and publish the One Planet SWF Framework that seeks to promote the integration of climate change analysis in the management of long-term portfolios.
ADIA, which does not publish detailed financial results, said its 20-year and 30-year annualised rates of return were 5.4% and 6.5% respectively in 2018 compared with 6.5% and 7% respectively in 2017.
"While these rolling averages were impacted somewhat by the exclusion of strong gains in the mid-to-late 1980s and 1990s, ADIA’s real returns remained largely consistent with previous years and historical levels," said ADIA managing director Sheikh Hamed bin Zayed al Nahyan.
Outlining its long-term portfolio strategy by region, it said North America would account for a maximum of 50%, with Europe, emerging markets and developed Asia accounting for maximums of 35%, 25% and 20% respectively.
Equity markets seem finely poised in 2019, ADIA said, adding that over the longer term it remained confident about the relative prospects for emerging markets – particularly China and India – versus the developed world, and this would be reflected in the emphasis it places on these markets.