Rising government debt levels and inflationary pressures in emerging economies will cast a shadow on global economic growth, sovereign wealth fund Abu Dhabi Investment Authority (Adia) said in its 2010 annual review.

The fund, whose assets range from Citigroup bonds to a stake in London's Gatwick Airport, expects economic growth to remain 'hesitant' in the near-term but said it was confident equity returns will revert back to historical levels of 6-8 per cent in a post-recovery phase.

'Looking forward, we anticipate global economic growth to remain hesitant in the near term as governments in major developed markets begin the sensitive task of cutting potentially burdensome debt levels without undermining growth,' Adia said in the report.

'Assuming bond yields remain low and in the absence of major negative macro events - equities appear relatively attractive even using conservative assumptions with regard to the equity-risk premium.'

Adia provided a rare glimpse into its investment portfolio with its first annual review published in 2010. In the same year, Adia named Sheikh Hamed Bin Zayed Al-Nahayan, the brother of the UAE's ruler, as managing director after the death of previous head Sheikh Ahmed in a glider crash in Morocco.

Returns

Adia, considered to be one of the world's largest sovereign funds, returned 7.6 per cent on an annualised basis over a 20-year period, as of December 31, 2010, it said in the review.

That was higher than the 6.5 per cent annualised return for the previous year.

On the same basis, the fund returned 8.1 per cent over a 30-year period, against 8.0 per cent in 2009.

Overall portfolio composition remained relatively unchanged from the previous year with developed market equities gaining maximum allocation of 45 per cent.

Emerging market equities formed between 10-20 per cent of the total portfolio, while government bonds formed at least 10 per cent of its portfolio with a maximum allocation of 20 per cent.

North America and Europe accounted for a major chunk of investments, with about 60 to 85 per cent going to the regions.

Emerging markets constituted at least 15 per cent.

Adia restructured its external equities department, separating indexed funds from active funds as part of a more focused strategy, it said last month.

While the Abu Dhabi fund does not disclose its net worth, the Sovereign Wealth Fund Institute estimated its value at $627 billion, making it the largest sovereign wealth fund in the world. – Reuters