SWFs pull money from asset managers for 12th consecutive quarter

A glut in oil supply, due to increased US shale production, triggered a sharp drop in the oil price © Bloomberg

Sovereign wealth funds have withdrawn billions of dollars from asset managers for a 12th consecutive quarter as low oil prices continue to take their toll. The net amount repatriated in the past three years has reached $182bn.

The state-backed funds, which many oil-rich nations use to save for a rainy day or to provide money for future generations, withdrew a net $6bn in the three months to the end of June, according to eVestment, the data provider.

Redemptions by SWFs began in the latter half of 2014, shortly after a glut in oil supply, due to increased US shale production, triggered a sharp drop in the oil price.

“It coincides almost exactly with the large decline in oil prices,” said Peter Laurelli, vice-president of eVestment.

However, disenchantment with high fees charged by fund managers as well as a desire by some state-backed vehicles to put cash to work themselves are additional inducements for SWFs to take back control.

Withdrawals from Norway’s $1tn oil fund, the largest sovereign wealth fund in the world, illustrate the pressures SWFs are facing. While not the same as redemptions from external asset managers, the Norwegian government pulled NKr140bn ($17.6bn) from the fund in the 18 months to June, a reflection of falling oil prices as well as higher government spending.

Global SWF redemptions in the second quarter were most marked in equities, with more money being allocated to fixed-income assets.

Almost $6.7bn was pulled from passive equity funds, according to eVestment, whose data are based on information supplied by asset managers.

“They are still looking for actively managed products, but you really have to offer [them] a good deal,” said Michael Maduell, president of the Sovereign Wealth Fund Institute.

Tom Brown, head of asset management at KPMG, the consultancy, said lower oil prices were driving redemptions, but asset manager “fees are obviously very important”.

There are signs of moderation. The net outflow in the second quarter of 2017 was below the quarterly average of the past three years, which has been around $15.1bn every three months.

The gross outflow of $15.6bn in the three months to the end of June was around half the level of the previous quarter and more in line with the level from late 2016, reflecting greater stability in oil prices.

Mr Brown said the reduced net outflows could reflect SWFs’ reluctant adjustment to the reality of lower oil prices. “There was an initial quite big reaction to the drop in the oil price but people have gotten more used to that,” he said.

The price of Brent crude is still far from the $100-plus level last seen in 2014, despite multiple attempts by Opec, the oil cartel, to ease the glut.

Opinion is divided as to whether more support for prices is on the horizon. Last week, Trafigura, one of the world’s biggest commodities traders, said the oil market was close to turning a corner, but some within the industry are doubtful despite robust demand.

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