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Changes in Oil Prices Negatively Affect Sovereign Wealth Funds | ASHARQ AL-AWSAT English Archive 2005 -2017
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The company logo of the Bank of America and Merrill Lynch is displayed at its office in Hong Kong March 8, 2013. REUTERS. Bobby Yip

London-Sovereign wealth funds pulled $16.2 billion from third-party asset managers in the second quarter, according to the latest data from research firm “eVestment,” up from a revised $10.1 billion in the first quarter.

The outflows were the second largest in five years, exceeded only by the $22 billion withdrawn by sovereign wealth funds (SWFs) in the third quarter of 2015, when oil prices tumbled around 25 percent.

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 revealed the highest proportion of external managers reporting SWF net outflows, at 72 percent, compared with just 28 percent 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The eVestment data showed that over $7 billion was withdrawn from U.S. equities mandates, with passive Standard & Poor’s 500 (S&P 500) equity funds bearing the brunt of the selling. In total, equity funds lost $8.6 billion.

This selling occurred despite strong gains in global stocks with the S&P 500 up 7 percent this year to record highs, while the benchmark world equity index is up 4 percent.

Overall, fixed income funds lost $7.5 billion, with some $3.2 billion pulled from U.S. mandates and $2.7 billion from global strategies.

Moreover, equity funds attracted $5.1 billion of net inflows this week, building on last week’s $6.5 billion of inflows as investors continued to pile into U.S. and emerging market stocks, Bank of America Merrill Lynch (BAML) said on Friday.