ADIA has significantly increased its focus on technology and the use of AI, building out a quant research and development team of more than 100 people, and launching ADIA Lab which engages in applied research in data science, artificial intelligence, machine learning, and high-performance and quantum computing, across all major fields of study.

The Abu Dhabi Investment Authority (ADIA) is positioning for artificial intelligence to profoundly impact innovation, productivity and ultimately, economic growth. The technology has entered mainstream terminology and its transformative potential has come into sharp focus, said Hamed bin Zayed Al Nahyan, managing director, ADIA, writing in the investor’s 2023 Review.

On one hand, it is making markets increasingly efficient, and enhanced returns harder to achieve. On the other, technology is unleashing a wave of innovation that promises to deepen the opportunity set for those investors with the resources and agility to capture them according to Abu Dhabi’s sovereign wealth fund which manages an estimated $1 trillion.

He writes that technology will continue to rise up the global agenda as the emergence of increasingly powerful tools create new opportunities for those able to grasp them.

“At ADIA, we believe that several interconnected, global transitions are currently underway: technological, economic, and energy-related, among various others. In recent years, we have sought to integrate technology into the fabric of our organisation. As part of this, we have embraced new tools to enhance our efficiency and internal agility, and separately have been increasing our internal quantitative skillsets.”

building out the quant team

ADIA’s integration of AI into its own investment processes is visible in the role out of a systematic, science-based approach to investing where the Quantitative Research & Development team (QRD) develops and implements investment strategies through a peer-reviewed scientific process.

QRD now counts around 100 experts in areas from quantitative analysis to data science and AI, playing a pivotal role in evolving ADIA’s asset allocation process, making it increasingly responsive to fast-moving opportunities.

Data analytics and quantitative investment capabilities across the organisation is particularly manifest in the core portfolio and fixed income teams where the focus is on finding new tools to analyse and derive insights from data.

ADIA’s middle and back-office teams have been engaged in an ongoing project to enhance and refine how data is managed and presented, to help ensure the organisation always has the most comprehensive and timely data possible to support decision-making, states the Review.

Other pivotal technology initiatives at the fund include ADIA Lab, an independent research institution focused on data and computational sciences. It marked its first full year of operation in 2023, making numerous contributions to Abu Dhabi’s growing digital ecosystem.

ADIA Lab operates at arm’s length from ADIA and is led by an advisory board of global thought leaders in data and computationally-intensive disciplines, including winners of the Nobel, Turing, Godel, Rousseeuw, Gordon Bell, and other awards.

ADIA Lab is engaged in basic and applied research in data science, artificial intelligence, machine learning, and high-performance and quantum computing, across all major fields of study. This includes exploring applications in areas such as climate change and energy transition, blockchain technology, financial inclusion and investing, decision making, automation, cybersecurity, health sciences, education, telecommunications, and space.

The inaugural ADIA Lab Symposium held in Abu Dhabi in November attracted a range of globally-renowned scientists for a two-day event exploring how data science, blockchain, high performance computing and AI could address challenges in climate and health sciences.

Elsewhere ADIA Lab has partnered with Spain, establishing its European headquarters in Granada. As part of the agreement, the unit has launched five research programmes with Spanish universities and research institutions. Key areas of focus include analysing data and complex systems in public health, the environment, and the digital economy, as well as high-performance computing and the development of artificial intelligence.

In another initiative ADIA Lab Best Paper Awards have invited researchers to address complex challenges through the application of data science.

Total portfolio investment

The Review also noted progress in total portfolio investment. ADIA seeks to emphasise total returns at a portfolio level in contrast to the more traditional approach of tasking individual asset classes to outperform benchmarks. This has meant the investor has steadily increased its exposure at a total portfolio level to areas in which it holds natural competitive advantages, particularly private assets.

For example, the private equity allocation has grown to 12-17 per cent of ADIA’s total portfolio in comparison with 10-15 per cent in 2022.

“In private equity ADIA has leveraged its often decades-long relationships in the sector to broaden and deepen how it accesses the sector, and ultimately enhance returns,” wrote Hamed bin Zayed Al Nahyan.

At a total portfolio level, ADIA has also expanded assets managed internally from 55 per cent in 2022 to 64 per cent in 2023. Most of the push into internal management has happened in indexed equity exposures in the core portfolio department.

“This provides ADIA with additional flexibility to optimise its investment activities and implement asset allocation decisions more efficiently. In parallel, ADIA is continuing to expand and deepen relationships with leading external managers across various asset classes,” stated the Review.

The Review marks the allocation to developed equities between 32- 42 per cent; emerging market equities (7-15 per cent) government bonds (7-15 per cent) credit (2-7 per cent) financial alternatives (5-10 per cent) real estate (5-10 per cent) infrastructure (2-7 per cent) private equity (12-17 per cent) small cap equities (2-7 per cent) while the cash allocation is between zero to five per cent.

Promoting home grown talent

ADIA has also focused on developing its talent pool – a key aim since inception in 1976. The investor supports talented UAE Nationals early in their careers with scholarships at prestigious local and international universities – typically in science, technology and mathematics related subjects.

It then encourages them to continue their academic growth in more specialised, technical areas that are becoming increasingly relevant to success in finance.

“By pursuing learning as a core skillset, ADIA is positioning its people to succeed in what is likely to become an increasingly dynamic investing landscape,” concludes the report.

Jessica Gao, associate director of research at the Thinking Ahead Institute, outlines how asset owners can use AI to solve a growing resource gap in stewardship activities.

In May, we published the stewardship resourcing report, in collaboration with UNPRI, titled Putting resources where stewardship ambitions are.

TAI estimate that the industry average is likely to be around or lower than 5 per cent of total resources. The report suggests that our industry should consider doubling its stewardship resources to meet the increased demands and needs. This includes expanding stewardship activities beyond listed equities and addressing a broader range of ESG issues, including systemic risks.

A common question I face when presenting our findings is: where will these additional resources come from? How can business leaders  allocate more resources to stewardship when overall resources are constrained? The latest TAI/Future Fund asset owner peer study shows that organisations recognise the need for change but struggle to find the necessary resources.

In our stewardship resourcing report, we proposed that organisations could potentially boost stewardship resources by adopting a more integrated approach and reallocating some resources from asset allocation. However, this is unlikely to be sufficient because:

  • existing resources for asset allocation may already be stretched thin
  • stewardship requires a different skill set that may not be covered by current resources
  • training for stewardship roles demands both time and additional resources.

A different example, however, shows what can be done in terms of shifting resourcing. Following years of little meaningful change, global AI adoption jumped by over 30 per cent between 2023 and 2024, with the use of generative AI almost doubling. The financial services industry is making big strides in AI adoption, second only to the technology sector (though still far behind)[3].Could stewardship benefit from this increased AI adoption and its ability to refine complex processes and data sets?

Using AI in voting to free up stewardship resources

In its latest stewardship report, the £35 billion Brunel Pension Partnership, dedicated a page to the use of AI in its stewardship activities.

Brunel employed an AI-drive tool to analyse and compare the voting guidelines of around 20 asset managers and owners. It also used AI to assess the implementation of their voting guidelines and generate a quarterly report.

This approach improved the reliability of the reports and significantly reduced the time and effort previously required for manual checks. The report can then be used to address any inconsistencies in voting with service providers.

AI adoption in voting allows Brunel to free up resources to engage with investee companies and other core stewardship activities. Oliver Wright, responsible investment officer at Brunel, expects increased use of AI in stewardship as the technology advances and more tools become available.

Using AI with antimicrobial resistance (AMR) issues

AI is increasingly being used to address sustainability issues and systemic risks. For example, AMR is recognised by the World Health Organisation as one of the leading global threats to health and development[4]. It’s one of the top systemic risks that investors focus on through stewardship activities[5]. AI tools have been used to monitor and optimise livestock management, including disease control and to guide antibiotic use on farms[6].

Additionally, AI tools have been developed to predict potential antibiotic resistance[7]. These advances may reduce the time and effort investors need to spend on AMR-related engagement activities, allowing them to reallocate resources to other challenging areas, such as social issues.

Possible path forward

We are at the early stages of AI adoption. With the extraordinary surge in interest and investment in AI, organisations in our industry can unlock its significant potential and find the much-needed resources to drive change.

AI algorithms can analyse investment data, detect compliance issues, and track performance against ESG criteria with greater accuracy. This will enable investment managers to oversee their portfolios more effectively, utilising real-time insights generated by AI.  Key areas where AI can make an impact include:

  • Data analysis and risk management: AI algorithms are excellent at predictive analysis and forecasting. They can rapidly process vast amounts of data to uncover hidden patterns, trends and correlations. AI-powered risk models can potentially better identify ESG risks that may impact a company’s long-term value. These tools may significantly reduce research time, allowing investment management teams to make informed decisions based on a deeper understanding of the companies in their portfolios.
  • Engagement automation: AI tools, such as AI driven chatbox and virtual assistants,  could streamline communications and standard engagements.  Some engagement tracker tools are already available on the market for investors to leverage.
  • Reporting and communication: stewardship reporting and communication currently consume a considerable portion of stewardship resources. By employing automated reporting, natural language processing and sentiment analysis, could some of these resources be redirected to other core stewardship activities?

At the same time, we need to remain mindful of the issues and risks associated with using AI. AI is only as good as the data it is fed, and, at worst, it can amplify incorrect or biased data.

It is crucial to build inclusive, people-centered AI solutions that enhance our decision-making rather than completely replace human judgment. AI should be a tool that supports and augments human expertise, not one that diminishes its value.

AI can play a crucial role in addressing the stewardship resources problem in the investment industry. By integrating AI, we can leverage technology to support human judgment and expertise, ultimately leading to better outcomes for investors, the industry and society as a whole.

Jessica Gao is associate director, research at the Thinking Ahead Institute.

Elizabeth Corley, chair of Schroders plc and Impact Investing Institute, sees global fund managers approaching a crossroads, where divergent regulation on sustainability issues will make it difficult to satisfy asset owner demands for systems thinking and universal ownership.

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When Top1000funds.com interviewed Nicolai Tangen in 2023 about being awarded the most transparent fund in the Global Pension Transparency Benchmark, it was clearly a priority but not yet a completed project for the Norges Bank CEO. In the year since then, the fund has taken the idea of transparency and run with it, making huge gains through a concerted effort that among other things required advocating the government to make governance changes.

Norges Bank has taken the top spot again in the Global Pension Transparency Benchmark, marking two consecutive years of outshining a cohort of 75 funds globally. But perhaps even more extraordinary than the consistency and continuous improvement, this year the fund was awarded a perfect score of 100, up from 89 in 2023.

And if that wasn’t enough, to create the change needed to reach that summit, the necessary improvements included inviting the Norwegian government to upgrade its governance disclosures.

“We got great cooperation from the government and are taking transparency to a new level,” Tangen said in an interview with Top1000funds.com from New York.

“We looked at where we could improve from last year and saw governance was one key area. It wasn’t possible to improve the score without changing the governance so we put in place systems and reports that didn’t exist before.

“We explained to the government where we needed to improve and what was necessary to make those improvements, and we asked them for help. And they really stepped up and we got all the assistance we needed.”

The change includes new documents such as competence mapping of the board, which had not been a public document in the past. In the process, this raised questions over whether the Ministry of Finance should insist all state entities have the same self-assessment.

“We got great cooperation from the board and ministry,” Tangen says. “It’s difficult to do because there is no black and white answer in that survey when you assess your own competencies.”

Transparency has been a strategic initiative for Norges Bank, which manages the Government Pension Fund Global, since Tangen took the helm in September 2020.

It’s not just because being transparent is the right thing to do, nor that the Norwegian sovereign wealth fund is a ‘fund for the people’ and stakeholder management is crucial in the context of Scandinavian values. It’s because transparency builds trust and a platform to be more impactful in generating change.

“It is important for us to build trust,” Tangen said.

“I think transparency and openness is an important Scandinavian value and we see it in the public sector generally.

“This is a very, very important survey for us because transparency is at the cornerstone of the mandate, and the importance of stakeholders and others having trust in the fund is totally key.”

Transparency in action

Tangen said Norges Bank is in a state of constant evolution when it comes to transparency.

“We try to develop transparency in everything we do,” he said, pointing to an exponential increase in the number of people who can speak on behalf of the fund externally from five, four years ago, to 130 now.

“We are showcasing our great colleagues. One of the ways to increase trust is to let the external world see the specialists we have and the real experts we have. It is comforting for people, and builds trust,” he said.

“In my mind if there isn’t a reason for having a secret then you should share it. There are so many positives to being open and transparent.”

Unlike some sovereign wealth funds that don’t disclosure their AUM, Norges Bank publishes its AUM online, and updates the value 13 times a second. It’s also more open on its views and has expectations documents regarding thematics, as well as a podcast, In Good Company, where Tangen interviews CEOs of portfolio companies.

For Norges Bank there is also a connection between transparency and impact in the way it uses its holdings to influence portfolio companies.

The fund’s giant equity portfolio, which makes up about 69 per cent of assets, makes it the largest single owner of the world’s stocks, representing about 1 per cent of all listed equities globally. It votes in 12,000 annual general meetings across 63 countries every year, and five days before each AGM it reveals how it is going to vote, giving other institutional investors and the companies themselves full transparency on their voting position.

In addition, it lists every investment holding on its website by name, which is updated twice a year, demonstrating full transparency in its investments.

Even so, there is a balancing act between transparency and disclosing market-sensitive information, Tangen said.

“We publish holdings twice a year, no other firm discloses holdings once let alone twice a year. More than that and you will disclose how you trade and act in the market,” he said.

The benefits of transparency

As a leader, Tangen believes transparency is not just important for external stakeholder communication and trust, it has many benefits internally, and the leadership group’s meeting notes are shared across the organisation so everybody in the firm can see what is discussed.

And as investment processes and decision making evolves, being transparent can be additive to the effective use of new tools and new technology such as AI.

“If we can de-classify documents inhouse freely and make them available in house, that is a way to build cooperation. The uses of AI are also easier when you are more open,” Tangen said.

He’s not afraid of the markets’ increasing complexity, with technology, geopolitics and climate complexity moving exponentially.

“The world has never been more complex, it’s fascinating and fun. When I wake up in the morning I can’t wait to get out of bed. It’s so incredibly fascinating,” he said, in a revelation of his enthusiasm for his job.

Transparency is a clear indicator of Tangen’s leadership style and he makes no secret of the fact that Norges has an ambition to be the world’s best fund. It’s rumoured that in year one of the GPTB when CPP Investments ranked as the most transparent fund, Tangen said it was OK to be beaten by Canada in ice hockey but not in transparency.

When Norges reached top spot for the first time last year, Tangen told top1000funds.com that it wanted to be “the world’s leading fund, full stop”.

“That includes everything from performance, reputation, our people and leading on ESG,” said.

To be the best in the world the leadership team is focused and deliberate in how it recruits, educates and retains people (it recently hired sports psychologists); how it embraces technology, especially the use of AI; its operational robustness and how it weathers volatility; communicating in a clear and consistent voice; and performance.

The GPTB, a collaboration between Top1000funds.com and CEM Benchmarking, ranks funds on their transparency of disclosures around cost, governance, performance and responsible investment. Norges landed a perfect score in each category in 2024, up from 91, 89, 95 and 94 respectively in 2023.

“What is interesting about the survey [2024], is how it is have lifted all participants,” Tangen said. “It shows the benchmark is doing a really good job and is really lifting transparency in the whole industry.”

In recent years, investors have viewed emerging markets a bit like marmite, the distinctly flavoured spread made from brewer’s yeast: they either like the allocation or they don’t.

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Investors are entering challenging return environment underscored by levels of geopolitical risk unprecedented in a 30-year career, says Jeff Wendling, outgoing president and chief executive of Canada’s $113 billion Healthcare of Ontario Pension Plan (HOOPP).

Investors have been supported by a benign geopolitical environment since the Berlin Wall fell in 1989 and China came into the global economy. But Wendling said this has now been replaced by wars in the Middle East, Ukraine and China’s growing show of force around Taiwan.

Indeed, as two separate geopolitical blocs emerge, Wendling questions if investors will be able to get their money out of China long-term.

“Is China even investable for an investor like us?” he questions, speaking to Top1000funds.com following the announcement of his retirement from HOOPP next year.

HOOPP’s exposure to China has fallen over time and is currently only 1 per cent. Investment strategy has always been titled much more to developed markets in Canada – where HOOPP’s $60 billion portfolio includes large real estate and fixed income portfolios – the US and Europe. The pension fund also has a 7 per cent exposure to emerging markets in Asia.

Ideally HOOPP would be invested in China, but he says the fund’s healthy long-term returns endorse a strategy that has never invested very much in the country.

“I think we can do well regardless,” he says.

Wendling’s observations of the investment climate carry particular resonance given his weight of experience – something he believes there is no subsidy for. He joined HOOPP in 1998 and has experience of the tech bubble and the subsequent wreck and was head of public equities during the GFC.

He recalls this period as the most challenging in his career. Mostly because the viability of public equities as an asset class for long term investors seemed to disappear before his eyes.

“That was a very hairy time,” he recalls. “That was a time, literally, when some folks were questioning the usefulness or the appropriateness of public equities as an asset class for pension funds.”

The experiences engrained a set of beliefs that have gone on to shape his career: investment is a cycle; nothing goes straight down (or up) for ever and the darkest points in a cycle also offer the greatest opportunities.

In the depths of the GFC when the S&P 500 was down 60 per cent, HOOPP took on considerable equity risk at unprecedented valuations in a strategy repeated during Covid when the fund snapped up Canadian banks at rock bottom valuations.

“We had Canadian banks selling off 20-30 per cent, trading at 6-7-8 per cent yields. We’re long-term investors and we often invest in those extreme market environments where the opportunities are really exceptional. It doesn’t actually mean you’re going to do well right away. You’ve got to be prepared to hold those things.”

Markets are generally efficient, and investors should be fully invested most of the time, he continues. But there are key moments, every decade or so, when markets become inefficient and characterised by extreme optimism or pessimism. This is when the opportunity for active management and long term investors really shines.

In it for the long term

Holding positions for the long-term has always been the most compelling corner of the investment world for Wendling. He was put off by the marketing component of asset management and believes it’s difficult to create long-term value from trading.

Pension fund investment was a natural fit, particularly as he was drawn to the purpose of helping create retirement security for healthcare workers and a conviction in the role of defined benefit funds in creating that security where around 75-80 per cent of pension payments come from investment returns.

Long term investors are ideally positioned to benefit from the once in a decade dislocation that markets typically experience, he continues. Only they have the ability to buy at these critical junctures because they are backstopped by patient approach that will allow the asset to recover over time without an eye on quarterly numbers.

“If I’m focused on a short-term performance, it’s got to work basically right away. That doesn’t help you make good decisions. If you’re focused on short-term performance, you’re almost trying to figure out how to call the bottom, which is really impossible to do. We’re just trying to figure out where we can make good investments and make good returns for the long term.”

He goes back to Canadian bank stocks bought during COVID to illustrate the point. The team believed it was a great price, and they would be great investments over the long term. They didn’t know when they would recover but they were prepared to hold them. As it turned out, they immediately went up when the stimulus came out.

He says long term investors don’t take a view on whether the market has reached its top or bottom. During the GFC when the S&P was sharply lower the team didn’t know if it was going to fall further or start to climb back up. But they were convinced it was a good time to buy.

Wendling says the internal and external search for his replacement is well under way.

“We’ve got some very strong folks here. But for something like the CEO, the organization is going to do a wide search, both internal and external,” he says.

The fact that he has been able to fulfil so many of his career ambitions at one organization by opportunities to rise up the ranks is a source of enduring gratitude.