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Operational

Operational Review

On the surface, 2019 bore all the hallmarks of a successful year. However, the strong market returns masked growing uncertainty as investors sought to navigate a complex assortment of fast moving events and longer-term paradigm shifts.

CASE STUDY

Operations Department

ADIA believes that organisational agility is a core attribute for success in a dynamically changing investing environment. This is measurable through what we describe as ‘operational alpha’, or the excess returns resulting from improving operational efficiency and maximising system functionality that leads to cost savings and increased income.

One example is ADIA’s Operations Department, which has a broad mandate to support ADIA’s investment processes while generating revenue through securities lending and other activities. Since 2016, the Operations Department has undergone a major transformation, which includes the following:

  • Created a new Global Head of Operations role.
  • Restructured the Department to function and grow effectively, creating two main and three specialist divisions.
  • Implemented a five-year plan across nine specific initiatives to increase efficiency and revenues, delivering a 90% increase in income to date.
  • Began work on automating most manual activities with a view to further enhancing straight-through processing (STP) rates.
  • Implemented initiatives to significantly increase annual securities lending revenues without increasing risk.

In less than three years, these efforts have resulted in increased automation rates, with 80% of total achievable time savings being reached by the end of 2019. This is expected to increase across most business areas by 2021, with many activities being fully automated by this time.

At ADIA, we believe this environment is the new normal; one characterized by greater competition for returns, economic and geopolitical volatility, and technological advances with the potential to transform the business of investing.

In response to this evolving landscape, ADIA has sought to increase its organisational agility, and sharpen how it generates insights and captures opportunities.

This effort gained momentum in 2019, with the completion of a major project to refine ADIA’s strategy model. This comprises our long-term objectives as well as the skills and behaviours we must enhance or develop to drive our success in the future.

One of the most tangible outputs of this work was the launch of a new ADIA-Wide Planning (AWP) process late last year. AWP is a comprehensive management system aimed at ensuring that ADIA delivers on its long term objectives by dynamically evolving its strategy, its internal structure and its ability to execute as the investment environment changes.

The AWP process includes regular workshops in which senior leaders across departments provide feedback on each other’s strategies and plans, within the context of ADIA’s total portfolio and strategy objectives. In addition to harnessing the vast experience throughout ADIA, these workshops play an important role in identifying common themes and opportunities.

ADIA’s investment departments act independently from one another in executing transactions and managing their portfolios. However, increased collaboration between departments at a strategic level is enabling ADIA to capture investment opportunities that fall between asset classes and might otherwise be overlooked.

In one example, the Real Estate & Infrastructure Department consulted with the Private Equities Department to identify best in class venture capital funds that it could collaborate with to remain at the forefront of emerging technologies in the real estate space.

This demonstrates why ADIA is empowering its investment professionals, as the experts closest to their markets, with greater discretion in how they deploy capital and risk. This increased autonomy enables investment teams to be more creative in seeking opportunities, and move more quickly when they arise.

Last year, the Fixed Income & Treasury Department completed its transition toward a Single Pool Framework, which is designed to reduce complexity, increase efficiency and empower the Department to manage more of its assets under a single active risk budget. This marked the successful culmination of what began as an experiment several years ago, initially with a small test portfolio with minimal constraints.

At ADIA, we believe a key driver of agility is a willingness to test our theories in low risk ways, as a means to learn and ultimately evolve through first-hand experience.

This approach provides valuable insights that often lead to more sustainable innovations.

One example is the work underway within the Alternative Investments Department to identify and test the performance of new asset types. Last year, the Department made its first investments in a new Emerging Opportunities mandate, which seeks to generate returns from new asset types such as insurance-linked products.

In striving to become more dynamic, we also recognise the important role that our employees play in this process. In order to keep pace with the rapidly changing investing landscape, employees are being encouraged to constantly challenge their assumptions and knowledge. ADIA’s wide range of learning and development opportunities provide employees with the resources they need to maintain their edge. These include sharing insights between teams, such as the regular China Forum hosted by ADIA’s Hong Kong office for employees across the organisation.

More broadly, meanwhile, we continued to play a role in fostering collaboration and debate with other sovereign wealth funds and long-term focused investors on matters of global significance. For instance, ADIA serves as chair of the International Forum of Sovereign Wealth Funds (IFSWF) and is a founding member of the One Planet Sovereign Wealth Fund Working Group.

In addition, last year ADIA held an Africa Investment Summit, a two-day event that brought together more than 180 representatives of sovereign wealth funds and other global institutional investors, with Africa-focused asset managers, banks, corporates and supra-national agencies. Held in Abu Dhabi, the Summit served as a platform to identify and debate actionable ways for long-term asset owners to access appropriate opportunities on the continent.

The year ahead promises a continuation of the projects now underway to make ADIA more dynamic. Another area of focus will be to increase our adoption of new technology across the organisation, both to enhance efficiency and increase returns. This will require the addition of highly skilled specialists in key areas as well as targeted training to ensure that existing employees remain at the cutting edge of technologies that may impact their work.

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