Inside the Abu Dhabi Investment Authority

For the first time the world's largest sovereign wealth fund gives broad access to its managing director Sheikh Ahmed bin Zayed Al Nahyan and his top investment team

Managing director of ADIA photographed in his offices in Abu Dhabi, UAE Tina Hager/Arabian Eye

By Emily Thornton and Stanley Reed

Sheikh Ahmed bin Zayed al Nahyan, managing director of Abu Dhabi Investment Authority Tina Hager/Arabian Eye

At $875 billion and growing, ADIA is the biggest sovereign wealth fund in the world

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It was a whirlwind of negotiations for Citigroup and the Abu Dhabi Investment Authority (ADIA). For a week, dealmakers from both sides, some dressed in traditional white Arab robes and others in Western suits, worked furiously across the globe. Then, on the Monday after Thanksgiving they signed a deal, with the biggest bank in the U.S. agreeing to sell a 4.9% stake to the world's largest sovereign wealth fund in ADIA's new headquarters, the tallest skyscraper in Abu Dhabi. Citigroup (C) chairman Robert E. Rubin, on hand as Citigroup's top official, shook hands on the deal with Sheikh Ahmed Bin Zayed Al Nahyan, ADIA's managing director and the 12th son of Abu Dhabi's late patriarch Sheikh Zayed, before dashing off to meet the Crown Prince of Abu Dhabi Mohammed bin Zayed al Nahyan. Forty eight hours later, the investment arm of the richest Gulf emirate, wired $7.5 billion to a Citigroup account.

The move stunned many of Wall Street's savviest dealmakers, but it was just another day for the Masters of the Oil Universe, who control an estimated $875 billion portfolio. Twelve analysts had been scouring banks' financials for months to find potential investments. Largely, they wanted to correct a massive imbalance in the fund's portfolio, one driven by weakness in U.S. stocks and credit. At first, they had wanted five or six smaller, less market moving, stakes in financial institutions—around $1 billion a pop. But they quickly switched gears after calling Citigroup's top banker Michael Klein in late November. After that, they realized they could solve their asset allocation problems in one shot with Citi. "We were underweight in U.S. equities, large companies, and credit," says Jean-Paul Villian, head of strategy at ADIA, whose management team recently spoke with BusinessWeek in a series of interviews, its first public ones. "Citigroup was reducing the risk of the portfolio."

The dollar looks sick, and U.S. stocks are getting pummeled. But those jitters are merely wetting the appetite of ADIA and other sovereign wealth funds for U.S. investments. These mega investors can afford to take a long term view. "The short term for us is three to five years forward," says Sheikh Ahmed in his dark mahogany paneled office, after a servant poured small cups of Bedouin style cardamom-flavored coffee. "We find (the American market) very attractive." At a time when Abu Dhabi's oil fields are producing extraordinary riches from $120 oil, ADIA, the emirate's other crown jewel, is raising its game. Charged with preserving the wealth of the richest Arab emirate for future generations, ADIA invested for years mostly in low-profile, conservative havens like U.S. Treasury securities and government bonds. But now, it's plowing about 34% of its money into exotica such as private equity funds, hedge funds, emerging markets, and infrastructure. And, in a move with implications for money managers across the globe, it is dramatically upping its investment in index funds.

Best in Class

In many ways, the rise of ADIA mirrors the recent rise of Abu Dhabi, its home base. Founded in 1976 when only about 20% of the population could read, ADIA has become more sophisticated. So has Abu Dhabi. Since the death of Sheikh Zayed in 2004, Abu Dhabi's leadership has become hugely ambitious, spurred by the gleaming spires and cosmopolitan ambience of their rival and neighbor Dubai. Zayed's sons, Khalifa, the emir and ADIA's chairman, along with Mohammed, the Crown Prince, are racing to transform long-sleepy Abu Dhabi into a refined cultural center. They're spending billions on a range of hugely ambitious undertakings, including Middle Eastern offshoots of the Louvre and Guggenheim museums, a New York University campus, and an outpost of the Cleveland Clinic.

Abu Dhabi wants to be among the world's most attractive destinations, and ADIA's Sheikh Ahmed is pushing the giant fund to be best in class as well. So ADIA is tapping the best financial brainpower. And with huge fees and potential capital stakes at stake, top Wall Street players are more than willing to oblige. In recent months, veteran investor Wilbur Ross, BlackRock (BLK) CEO Larry Fink, and Goldman Sachs (GS) CEO Lloyd C. Blankfein all have visited executives at the fund. "People view having an investment from ADIA as one of the top names in the Middle East and one of the region's most sophisticated investors," says Monte Brem, CEO of StepStone Group, a consulting firm in La Jolla, Calif. that advises Middle Eastern funds, including the Kuwait Investment Authority.

ADIA traces its investment roots to the 1960s, when it was a mere government investment board run by a British colonial officer and a local advisor to the Abu Dhabi royal family. And though the fund has long been regarded among the most savvy in the region, it's trying now to compete on a global stage and that means luring the crème of the world's investment management talent to what has until very recently seemed a remote and sterile place. The fund's spanking new 36-story skyscraper screams its desire to become one of the most admired investment firms in the world. The blinds automatically adjust to the sun. Lights shut off when sensors sense little activity. And approximately 200 servers process thousands of trades, collecting data on money flows that is used to form future investment strategies.

In the hallways of its office, men and women in Western suits mix with others in flowing Middle Eastern robes. About 70% of ADIA's 1,100 professionals are foreigners, many educated in the U.S. or Europe. Many local staff members also have Western educations, thanks to generous scholarships provided by the fund. By comparison, the Kuwait Investment Authority relies largely on domestic civil service workers.

Subject to Scrutiny

And while newer and flashier funds in Dubai and Qatar focus narrowly on high-stakes plays in stocks and buyouts, ADIA has a keen eye toward asset allocation, not unlike big endowments at Yale and Harvard University. Since its official inception in 1976, ADIA has returned about 10% a year, compared with 3.94% racked up by the world's second-largest such fund, the $380 billion sovereign wealth fund in Norway, since its founding in 1998. "They are among the best investors worldwide," says BlackRock's Fink. "I compare them to the top foundations, top sovereign wealth funds, top banks."

ADIA's huge size and unwillingness to disclose much about its investments means that whatever moves do come to light receive inordinate scrutiny. Sometimes ADIA chafes under its increased attention. Ever since Citigroup's stock went into freefall, ADIA has gotten flack for its Citigroup investment, even though the fund has locked in a return of least 11% by owning a convertible stock.