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The Middle East's Largest Sovereign Wealth Fund To Push Harder Into U.S. Real Estate

A portion of Abu Dhabi's skyline, seen from the Persian Gulf in 2014.

One of the biggest sources of capital in the world is planning to throw more of its weight around in U.S. real estate.

Abu Dhabi Investment Authority, the emirate's sovereign wealth fund, plans to raise its investment allocations in the U.S. this year and next, according to its 2021 annual review document published on Thursday and first reported by Bloomberg

Starting in 2021, ADIA's planned allocation in North America rose from 35%-50% to 45%-60%, with investment reductions in Europe, Asia and emerging markets to compensate.

ADIA's allocation in real estate remains at a 5% minimum and 10% maximum, and it plans to invest more in private equity and less in government bonds and credit, the report says.

With $829B in assets under management, ADIA is the largest sovereign wealth fund in the Middle East and third-largest in the world, behind Norway's Government Pension Fund and the China Investment Corp., Bloomberg reports.

Despite the grim picture recent data has painted of interest rate hikes and inflation slashing values and cooling deals, ADIA struck an optimistic note in its look forward after a 2021 in which the fund took advantage of the highest returns experienced in U.S. real estate since 2005, according to its report.

"Market fundamentals are well-supported by rising replacement costs on the back of high inflation in labour and construction materials, the delayed supply-chain response, and other disruptions resulting from the pandemic," the report says.

With the cost of financing one of the biggest headwinds facing real estate investors today, ADIA may be poised to swoop in and take advantage. It has prodigiously deep pockets, with its ADIA Real Estate Division now separate from its infrastructure team and operating more like private equity giants Blackstone and Brookfield.