The Abu Dhabi Investment Authority – perhaps the largest and most watched of all the Giants in the Middle East and indeed the world – has just released its 2011 Annual Review. it’s quite good, with some useful details about the organization and its long-term strategy. And, as per usual, I’ve read it in its entirety ...so you don’t have to.

Here are some of the more interesting take aways:

  • ADIA now has a team of 1,275, representing 40 nationalities, working out of its headquarters in Abu Dhabi. Of these, nearly 70% are expats.
  • The fund has 80% of its assets managed by external fund managers with 60% of assets in index replicating strategies. That means 20% of the fund's assets are managed in-house, which is actually quite a lot – $100-200 billion depending on the veracity of AUM numbers out there.
  • The fund has restructured its internal investment departments away from geographic silos towards strategic approaches, such as ‘indexed funds’, ‘external equities’ and ‘internal equities’.
  • The fund has combined its real estate and infrastructure departments into a single group.
  • The fund has also launched a new compensation and incentives program to more closely link individuals’ performance with the long-term objectives of the fund.
  • The fund also has a new management and leadership development program designed to foster a cohesive and effective organizational culture.
I think that all sounds quite positive. It seems clear ADIA is continuing to institutionalize its investment and organizational capabilities – and that, in my view, is the key to success over the long term. Kudos.

The one question I will raise about this Review – and I should raise at least one – stems from the SWF’s decision to abdicate its shareholder powers:

“ADIA does not seek an active role in the management of companies in which it invests... ADIA does not seek to manage or be represented on the boards of the public companies in which it invests. In practice, this means that it usually abstains from exercising its voting rights, except in certain circumstances to protect ADIA’s financial interests or to oppose motions that may be detrimental to shareholders as a body.”

This bothers me. I realize there are foreign policy considerations here, and the calamity of Dubai Ports still lingers in everybody’s mind, but why do we in the West want large shareholders (i.e., principals) to stop holding management (i.e., agents) accountable for all of their actions? As a long-term investor, ADIA could have quite a positive impact on managerial behavior, pushing the latter towards more sustainable business practices, broadly speaking. But to have this impact, the fund would have to be an active owner.

Anyway, that’s my one gripe with this document. You can download the entire report here.