Sovereign Wealth Funds Might Be About To Unload If Oil Stays Low
If oil prices remain in the $30 to $40 per barrel range, there could be a withdrawal of $404.3 billion from global listed equities, about twice the amount that left in 2015, according to a report from Sovereign Wealth Fund Institute (SWFI).
The report said being largely commodity-based, this low oil-price environment has tempered the acquisitive tastes of some sovereign funds, especially the smaller commodity-based wealth funds and pools of reserve assets. As of December 2015, oil & gas-based wealth funds accounted for 56.06 percent of the wealth fund market.
The most heavily impacted asset managers when it comes to outflows are emerging market specialists. This is true for a number of reasons, including the lackluster performance of many emerging market mandates and funds for institutional investors.
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The report noted that the next group of managers being affected is middle-of-the-road asset managers. These managers are typically conservative long-only equity strategies, applying a certain investment style such as value.
Custodial banks have also faced struggles as wealth funds bring more investment strategies in-house, where replication is easier with technology and increased competent personnel.
Bottom line, low commodity prices will continue to exert domestic pressure on governments to use sovereign wealth fund assets to finance budget deficits. However, many governments in 2015 have proved to use other means to finance deficits such as selling off non-core assets and raising sovereign debt in global capital markets, the report added.
The United States Oil Fund LP (ETF) (NYSE: USO) last closed at $8.48 and was down about 2.8 percent Wednesday morning.
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