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Oct 14, 2015

World’s largest SWFs shed European equities

IROs should prioritize communications with sovereign wealth funds, says NASDAQ Advisory Services

The world’s largest sovereign wealth funds (SWFs) of oil-producing nations have been selling European equity holdings as lower oil prices pressure governments to seek additional sources of revenue while keeping up with spending commitments, according to a report by NASDAQ Advisory Services.

The sale of European equities by Norges Bank Investment Management, the Saudi Arabian Monetary Agency and the Abu Dhabi Investment Authority started in May and accelerated through the third quarter, the research firm says.

‘With the selling by oil-dependent SWFs showing no signs of abating, and with these funds suffering from more than solely the weak oil price, the buying activity of oil-rich SWFs across firms may well be something of the past,’ the report notes. ‘Listed companies should prioritize communications with these investors and seek to retain their presence within their shareholder base, as large selling could truly hurt companies’ share prices and increase volatility.’

The Saudi agency has sold $1.2 bn worth of European equities – or about 13 percent of its European holdings – since May, according to the study. The Abu Dhabi fund has sold about $300 mn worth of European shares from a total European holding valued at $3.6 bn, and Norges has sold about $1.1 bn worth of European shares, or about 2 percent of its holdings.

Norges CEO Øystein Olsen has said his government will soon start spending more oil-generated reserves than can be renewed at the same time, while the Saudi government was forced to issue a $4 bn sovereign bond in July, its first since 2007, because it faces a fiscal deficit approaching 19.5 percent as it pays oil subsidies equivalent to 8 percent of its gross domestic product each year. Abu Dhabi has also acknowledged it faces pressure to withdraw from its funds amid ‘prolonged weakness in commodities prices.’