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Dec 07, 2015

Gulf governments pull cash from SWFs at record pace

Withdrawals in third quarter totaled a record $19 bn, eVestment data shows

The plunge in the price of oil has pushed sovereign wealth funds (SWFs) from oil-rich Middle Eastern nations to withdraw $19 bn from asset managers in the third quarter, the fastest rate of withdrawal ever, the Financial Times reports, citing eVestment data not publicly released.

Asset managers fear withdrawals, which have affected their profits, may grow further as the price of oil remains depressed since its collapse in the middle of 2014. Four of the world’s five largest SWFs are from oil-rich countries that face growing spending demands while income dwindles.

Recent withdrawals by SWFs may have been even larger than recorded by eVestment as governments used to oil-related income seek to prop up slowing economies and pay expenses at home. Morgan Stanley says BlackRock alone recorded $31 bn in withdrawals from government institutions in the second and third quarters.

The withdrawals are part of a larger trend – prompted by a generalized crash in the price of commodities worldwide – that is seeing governments from various regions divert money earmarked for investment into efforts to counteract slowing economic growth in their home countries, thus lowering the investable cash available to asset managers.

Besides Blackrock, Aberdeen Asset Management, Invesco, Franklin Resources, JPMorgan, Goldman Sachs, State Street and others are thought to have suffered large withdrawals from government clients, according to the FT.

As reported earlier, Ireland’s government also plans to take several billion dollars out of the Ireland Strategic Investment Fund, an SWF with $8.4 bn in investable assets, over the next five years and divert it to helping the Irish economy.

The Saudi Arabian Monetary Agency, the world’s third-largest SWF, has withdrawn $70 bn from asset managers this year while the Abu Dhabi Investment Authority, the second-largest, has bolstered its in-house teams to cut costs. Azerbaijan’s oil fund has also said it is shifting investment management in-house.