Guest Blog: ADIA’s “Review” Falls Short

Dr. Sven Behrendt is a visiting scholar at the Carnegie Middle East Center. He has written extensively on Sovereign Wealth Funds and specifically on the relevance of the Santiago Principles. Given this blog’s ongoing interest in ADIA’s newfound transparency (see here and here), Sven’s insights are invaluable. Read on:

The ADIA Review 2009 is a small step into the right direction. But when benchmarked against the Santiago Principles, it reveals a number of substantial shortcomings. The Santiago Principles request SWFs to publicly disclose relevant financial information to contribute to stability in international financial markets and enhance trust in recipient countries. Many other SWFs meet this request by providing precise information about the value of assets under management, strategic asset allocation, benchmarks, and information about equity holdings. ADIA restricts itself to providing some rudimentary information about its strategic asset allocation and its long term performance in the form of 20 and 30-years annualized rates of return.

The Review also provides only very sparse information about ADIA’s funding and withdrawal policies. It states that the Government of Abu Dhabi provides ADIA with funds that are surplus to its budgetary requirements. Withdrawals that ADIA is required to make available to the government have occurred infrequently, depending on commodity price developments. This information is well short of the industry benchmark that the Santiago Principles set. Information about precise funding and withdrawal arrangements, as well as the actual cash flows in and out of the fund within a given period of time is the norm.

The report does provide some revealing information about ADIA’s governance arrangements. The Review’s claim ADIA to carry out its investment programme independently and without reference to the government of Abu Dhabi most likely needs to be interpreted as an intended reconfirmation that ADIA is operating purely on the basis of financial and economic considerations. But it also reveals a missing link in ADIA’s accountability arrangements. If not to the government of Abu Dhabi, who else is the leadership of ADIA, its Board of Directors and its Managing Director, accountable too? The Santiago Principles took great care in putting some distance between the owner of a SWF, a government, and its operational management to shield it from political interference. But the Principles are rather firm on the fact that the leadership of a SWF should be accountable to its owner, the government. As the Santiago Principles state: “The owner should set the objectives of the SWF, appoint the members of its governing body(ies) … and exercise oversight over the SWF’s operations.” The relationship between ADIA’s leadership and Abu Dhabi’s government, or rather its non-relationship, as reported in the Review, calls the robustness of ADIA’s governance and accountability arrangements into question. To be sure, members of the ruling family occupy most of the relevant leadership positions at ADIA, very much reflecting the overall governance arrangements of its political institutions.

The Review is also fairly tight-lipped about ADIA’s political exposure, given highly the volatile, fluctuating and rather overwhelming dimension of broader Middle Eastern politics – whether there is or there is not a relationship between the government of Abu Dhabi and ADIA leadership. It would come as a surprise if ADIA is not confronted with a multitude of politically motivated demands to provide its financial weight to serve the broader domestic or foreign policy objectives of Abu Dhabi. Just a couple of months ago, the Norwegian Government Pension Fund – Global, one of ADIA’s peers, based on ethical considerations excluded the Israeli military giant Elbit from its investment portfolio for supplying a surveillance system that is part of the separation barrier being built by the Israeli government in the West Bank. It can be assumed that a move like this challenges ADIA’s leadership to take positions either way. In the spirit of the Santiago Principles, it would be important to know how it deals with it.

4 Responses to “Guest Blog: ADIA’s “Review” Falls Short”


  1. 1 rien huizer March 19, 2010 at 9:54 pm

    I have no idea how a “state” where government is a family business (look at the AD gvt website with the gvt organigram) and where there is no semblance of a western concept of democracy (nor dictatorship)can have a SWF that is formally and materially at arm’s length from that government. But it must be stated, otherwise there would be public non-compliance.

    In practice though, it is more than likely that ADIA is still, as it used to be, managed by people with professional backgrounds in investment and that the family leadership makes sure that no one has his hands in the till without their permission, or gossips about what is being done, or provides valuable information to outsiders. Given that the Ruler is benevolent, as are his close relatives, that is as much governance as you may need in that situation. Just another form of independence. Violating the Ruler’s rules can cost you your head..

    • 2 Ashby Monk March 21, 2010 at 1:09 pm

      Rien: True or False: You are a strident ‘realist’ that has grown weary with the conceits and concessions that come with liberal democracy.

  2. 3 rien huizer March 22, 2010 at 8:27 pm

    Realist yea. As to (liberal) democracy, not weary, there are no political systems in existence I would prefer to live under. But there is no harm in musing about structural weaknesses that may cause problems in a world increasingly characterized by mercantilist competition between states with a range of of degrees of democracy (a gross simplification, not unidimensional). If mercantilism is combined with an illiberal bias in domestic policy in some participants in the competition, one wonders what the liberal democratic response should be. Perhaps trade liberalism would have to be manipulated in concert with other goals, like the maintenance of a critical mass of economically viable liberal societies. The people who designed the post WWII internationalist infrastructure had pretty strong memories of the 2 1/2 prededing decades and were looking for a system that could resist the growth/return of both mercantilism and totalitarianism within the Atlantic area, reeducation of what were regarded as the aggressor into liberal democracies and a solution for the European colonial empires that would not impede US foreign policy domestically (for instance by giving US military assistance to Belgium suppressing a nationalist uprising in the Congo). Most of those things did not work very well, especially the decolonization (unfortunately that clashed within the liberal democrat). Not so much that they were not all worthy initiatives (so were some of Mao’s), but that they were vulnerable to unintended consequences and unfeasible within the logic of a multi-state constellation of democratic polities, where hegemonistic patterns are naturally inevitable. And, as the Fathers in those days were certain, the only solution would be a world government. All of that did not survive the challenges of this system to the sole remaining power with ueber-mercantilism (the State Monopoly on foreign trade and administrative pricing instead of markets domestically) and a nastier version of totalitarianism than the Uncle Joe admirers had believed during the war. Many years later the “fall of communism” did not mean starting all over again where we went wrong in 1945, because too many things had changed. That is history..

    Now my ongoing concern with the topic at hand is that SWFs are often a tool for elites that want to be both illiberal and mercantilistic, often because that fits the elite’s formula for survival (hence not necessarily for gains) and do so by using the infrastructure built and maintained by countries with more liberal traditions.

    ADIA and its ilk are, of course of a different kind: they are merely tribal funds in societies where only a minority of residents have citizenship rights and where the ruler is embedded in a structure that promotes benevolence and responsible paternalism. For citizens that might well be a second best solution to mainstream democracy. But clearly not suitable as a model..

  3. 4 Ashby Monk March 23, 2010 at 10:13 am

    Fascinating perspectives. I agree that mercantilism combined with an illiberal bias presents a tough policy problem for liberal democracies. And yes, SWFs do seem to be a way for the former to leverage the tools of the latter to maintain a ‘status quo’ that benefits leadership…


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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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