Analysing Abu Dhabi Investment Authority’s Performance

Last year I did a bit of complex analysis, mostly trying to estimate returns, to understand Adia’s 7.5% 30 year internal rate of return (IRR) ending in 2015. This year I will make it easier. Adia’s 2016 30-year IRR was reported as 6.9%. Did Adia perform poorly in 2016?

It is difficult to tell as there are two bits of information that we need. First, recall that investment performance is usually against benchmarks. We do not know what Adia’s is, but I have used the MSCI World Index. It isn’t necessarily appropriate but given Adia’s size, which means it is a major global investor, it can be insightful. The other thing we need to remember is that the 30 years ending in 2016 starts in 1986 whilst for 2015 it started in 1985. Therefore the only difference between the two are the years 2016 and 1985.

So we can look at the difference in 2016 return relative to the 1985, i.e. if Adia had a return of +20% in 2016 but +30% in 1985 then the 30-year IRR drops even though Adia did well in 2016. This is because the IRR gains the +20% of 2016 but loses the historical +30% of 1985. In this case Adia would be penalised on their good 2016 return because they had made a much better one in 1985.

From a mathematical point of view we can’t get the actual difference between Adia’s 2016 and 1985 returns, but we can get the ratio. For Adia its 2016 return is 15% lower than its 2015 return. The MSCI WI as per MSCI’s website is 5.32% for 2016 and 36.62% for 1986 which is a decline of 23%. Adia clearly outperformed the MSCI WI in 2016 relative to 1985 by a large margin. Since we don’t have actual numbers we can’t tell if Adia underperformed the MSCI in 1986, outperformed it in 2016 or a combination of both.

What we can say is that Adia has, directionally, improved dramatically in its ability to manage its investments. A sign of the growth of our country not only in terms of population, real estate and economy but also in terms of effectiveness and efficiency.

This article was originally published in The National.