SWFs pull $16.2 billion in Q2

Oil-funded SWFs are under pressure to liquidate assets in the midst of collapsing oil prices

Sovereign wealth funds (SWF), including the state-owned investment funds in the GCC region, pulled $16.2 billion from third-party asset managers in the second quarter, up from a revised $10.1 billion in the first quarter, according to the latest data from research firm eVestment.
The outflows, according to the data, were the second largest in five years, exceeded only by the $22 billion withdrawn by sovereign wealth funds in the third quarter of 2015, when oil prices tumbled around 25 per cent.
Peter Laurelli, global head of research at eVestment, which collates data from 4,400 firms managing money on behalf of institutional investors, said SWF flows to external money managers appeared "highly correlated" to global commodity prices, particularly oil prices.
"Continued redemptions could be a sign SWFs expect continued pressure on commodity prices in coming quarters," he said.
The second-quarter data also disclosed the highest proportion of external managers reporting SWF net outflows, at 72 per cent, compared with just 28 per cent reporting net inflows.
The depth of the sell-off reflects the fact that countries such as Russia and Saudi Arabia, which are heavily reliant on oil exports to generate income, have raided their rainy day funds to close budget gaps.
The eVestment data showed that over $7 billion was withdrawn from US equities mandates, with passive S&P 500 equity funds bearing the brunt of the selling. In total, equity funds lost $8.6 billion.
According to the Institute of International Finance (IIF), the GCC sovereign wealth funds are by and large shunning the UK in the aftermath of Brexit referendum.
"A significant portion of GCC's sovereign wealth funds could move out from the UK to other matured economies (such as the US) and emerging economies," IIF chief economist (Middle East and North Africa) Garbis Iradian said.
The SWFs in Qatar, Saudi Arabia, Kuwait and the UAE - which had been active buyers in the British property market, especially in London - have, of late, been reportedly going slow in their activities in the UK on uncertainties over Brexit.
According to political risk advisory firm GeoEconomica, oil-funded SWFs are under pressure to liquidate assets in the midst of collapsing oil prices. There was roughly a 20 per cent fall over the past year in the deposits and reserves stored in the Saudi Arabian Monetary Agency by the Saudi government, according to estimates. This suggests that oil giants such as Saudi Arabia are now seeking to protect their budgets against dramatically declining revenues.
Of total assets around the world, $4.9 trillion comes from oil and gas SWFs, which are funded by revenues from energy exports. The most prominent examples of these are in oil-rich countries like Norway, Kuwait and Saudi Arabia. These types of funds are designed to act as a buffer to oil price volatility, as currently seen in markets.
With a total worth of $847.6 billion, Norway has the world's largest SWF. Overall, the fund has extended its investments to 9,000 companies in 75 countries.
GeoEconomica report said the Abu Dhabi Investment Authority (Adia), the largest SWF in the Middle East, currently manages assets worth $792 billion. Adia also holds stake in a number of other projects including a 50 per cent stake, worth $2.4 billion, in three Hong Kong hotels. ADIA has a stake in the London's Gatwick airport and Norwegian gas company Gassled. The fund has extended its investments across 24 asset classes and has had a 7.4 per cent annualised rate of return in the last 20 years.
Controlled by the country's central bank, Saudi Arabian Monetary Agency consists mostly of Saudi's surplus petro-dollars. Holding assets worth $598.4 billion, the fund is said to have invested in a diverse portfolio including cash deposits, fixed income and equities
Kuwait Investment Authority is the oldest SWF in the world. Currently holding $592 billion worth of assets under its management, the fund derives most of its wealth from the state's surplus oil revenues. The Qatar Investment Authority, which was founded with the aim to invest revenue from the country's significant budget surpluses, currently manages $256 billion worth of assets.
- issacjohn@khaleejtimes.com