The Abu Dhabi Investment Authority has been active in pursuing new investment opportunities in infrastructure by targeting investment platforms rather than auctions, where it found stronger competition that led to higher prices and lower returns, according to its latest annual report.
“This approach proved successful,” the sovereign wealth fund said, citing two examples from its 2017 investments in India – a $1 billion commitment to the government-backed National Investment and Infrastructure Fund and the acquisition of a minority stake in Cube Highways, the toll road platform managed by US fund manager I Squared Capital.
Outlining its strategy, ADIA’s core focus will remain on utilities, transportation and energy infrastructure – “assets with strong market-leading positions and relatively stable cashflows.”
It will neither seek to acquire controlling stakes nor to operate the assets in which it invests, but will primarily look to access the asset class by investing alongside financial and strategic partners. Geographically, the main focus will be on developed markets but there will “also [be] an increasing focus on emerging markets”, it said.
While investor interest in the asset class continued to grow in 2017, pushing up prices and compressing returns, the outlook for infrastructure asset valuations is less certain in 2018 than in previous years.
“Tightening monetary policy may push up discount rates and impact asset valuations, although anticipated government spending, particularly in major markets, may help to offset these factors and underpin further growth,” ADIA stated in the report.
Currently, infrastructure and real estate are managed under one department in ADIA, headed by executive director Khadem Mohamed Matar Mohamed AlRemeithi. Having conducted a review of its divisional structure, ADIA’s infrastructure team is now working on analysing its optimal long-term portfolio allocations – which it will announce later this year.
At the moment, ADIA has a maximum allocation to infrastructure of 5 percent, with a minimum of 1 percent. The fund did not provide figures either for its infrastructure portfolio or for the returns it has generated. A spokesman for the fund declined to comment.
The 20-year and 30-year annualised rates of return for the entire ADIA portfolio, which according to Infrastructure Investor’s data totals $828 billion, stood at 6.5 percent and 7 percent respectively, as at the end of 2017, compared with returns of 6.2 percent and 6.5 percent the previous year.