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Sovereign wealth funds withdraw $19B from asset managers

Sovereign wealth funds in the Gulf have been pulling money out of asset managers at the fastest rate on record as they rush to boost their economies following the collapse in the oil price.

At least $19bn was withdrawn by state institutions during the third quarter, according to data provider eVestment, denting investment managers' profits and raising concerns about the prospect of further outflows.

However, the true level of this year's withdrawals is likely to be much greater as some asset managers, including BlackRock, the world's biggest fund house, do not disclose their dealings with sovereign funds. Morgan Stanley estimates BlackRock suffered redemptions of $31bn from government institutions during the second and third quarters. BlackRock declined to comment.

Governments in oil-rich countries have been forced to raid their wealth funds in response to the slump in the oil price, which has more than halved since mid-2014 to $43 a barrel.

Aberdeen Asset Management, Northern Trust, Franklin Resources and Old Mutual Asset Management have each said they have been hit by redemptions from government funds this year.

Martin Gilbert, chief executive of Aberdeen, Europe's third-largest listed fund house, which reported its 10th consecutive quarter of outflows last week, said: "If the oil price remains low, we will see more redemptions from sovereign wealth funds."

Four of the five largest sovereign funds in the world are based in oil-rich countries. More than three-quarters of oil-backed vehicles outside of North America expect governments to withdraw money because of sustained low oil prices, according to research by Invesco, the US fund manager.

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The Saudi Arabian Monetary Agency, the fourth-largest sovereign wealth fund in the world with $672bn in assets, has withdrawn about $70bn from external managers this year to support its economy.

If sovereign fund redemptions continue at the same pace as 2015, listed asset managers could see their earnings per share drop by 4.1 per cent, according to Morgan Stanley.

Michael Maduell, president of the Sovereign Wealth Fund Institute, a US-based consultancy, said: "The Gulf sovereign funds have dumped a bunch of [asset managers] and that has been a very big deal for the fund industry."

Jeffrey Levi, a partner at Casey Quirk & Associates, an investment management consultancy, added: "There is big pressure on governments because of the oil price drop and they are looking to sovereign funds for cash flow."

Most sovereign wealth funds are unwilling to discuss recent redemptions and asset managers are also being coy about their dealings with the funds because of confidentiality agreements.

Morgan Stanley said sovereign funds also pulled money from Invesco and the asset management arms of US banks State Street, JPMorgan, BNY Mellon and Goldman Sachs during the second and third quarters.

Amin Rajan, chief executive of consultancy Create Research, said redemptions by sovereign funds were also being driven by investor sentiment, which had "turned ultra fickle since the Black Monday in August", when a crash in Chinese stocks spread to global markets.

"Many [government funds] fear that things could get ugly again with the imminent rate hike cycle in the US‎," he added. "Asset managers have to prepare for a bumpy ride in 2016."