Our overall portfolio has implicit risk and return objectives that have evolved over time according to global market developments, whilst always remaining consistent with our fiduciary responsibilities.
These objectives are central to the creation of our “neutral benchmark” or shared long-term view of the world, and the resulting asset allocation process.
In keeping with our prudent culture, identifying and managing risk plays a central role in every stage of ADIA’s strategic and day-to-day decision-making. The Managing Director has ultimate responsibility for ADIA’s risk management, with assistance and advice from a number of committees and departments, including: Investment Committee, Management Committee, Strategy Committee, Strategy Unit, the Evaluation & Follow-Up Department, Investment Services Department (ISD), Internal Audit Department and Legal Division.
Exposure to absolute market, credit, and liquidity risk, as well as systemic risks, is managed primarily through the diversification, by asset class and geography, of the ‘neutral benchmark’ and the associated asset allocation decisions. The individual components of the ‘neutral benchmark’ are termed ‘Pools’ which can be further split into passive and active. Relative risk is managed by the respective investment departments against their assigned benchmark and approved pool investment guidelines. It is embedded in the investment processes that we undertake within and across asset classes.
We operate numerous risk-control mechanisms at a departmental level. For market and counterparty risks these include information systems capable of storing and evaluating a range of risk criteria or investment guidelines within each managed portfolio, together with relevant trading limits. These systems allow for both pre-trade and post-trade compliance checking.
ISD’s centralised risk function is responsible for enhancing, standardising and ensuring consistency in the identification, measurement and monitoring of risk through a risk framework that supports departments in managing their risks and enables consolidated reporting of risk exposures to senior management. This encompasses all aspects of risk including:
> Investment Risk (including liquidity risk)
> Operational Risk
> Credit Risk.
Other functions within ADIA are tasked with assisting in addressing the following risks:
> Regulatory – Compliance and Legal Division
> Reputational – Communications, Compliance and Legal Division
> Business Continuity – Business Continuity Management team.
Through our hiring and employment practices, we ensure our employees follow high standards of ethics, integrity and professional competence. We require all of our people to adhere to the ADIA Code of Ethics and Standards of Professional Conduct, which are designed to help manage potential conflicts of interest and cover several areas, including:
> Pre-approval of personal account trading
> Disclosure of outside business interests
> Disclosure of gifts or benefits received.