Asset managers suffered record outflows from sovereign wealth funds in 2015 and have been warned to expect even greater redemptions this year as the oil price collapse drives governments to raid their state-owned investment vehicles.
State funds pulled at least $46.5 billion from asset managers in 2015 - far greater than the sovereign outflows recorded at the height of the financial crisis - in a bid to prop up their economies, according to figures given exclusively to FTfm by eVestment, the data provider.
The outflows have dented profitability at many of the world’s largest investment companies, including BlackRock, Aberdeen Asset Management, State Street and Franklin Templeton.
The chief executive of a large European asset manager, who requested anonymity, said the scale of redemptions from SWFs has been “very hard” for the industry.
“[State funds] have had a steep and very fast escape from the market. I am afraid it will continue,” he said.
Moody’s, the rating agency, predicted sovereign outflows would be at least 25 per cent higher this year due to the decline in the oil price, which has dropped from $130 a barrel in the middle of 2014 to $34 (Dh125) a barrel.
“Oil-dependent sovereign wealth funds are likely to increase redemptions from asset managers in order to plug fiscal deficits. [Sovereign] outflows will be a persistent headwind for asset managers,” the rating agency said.
Sharp reversal
Four of the world’s five largest state funds are based in oil-producing countries, including Norway’s $820 billion oil fund . Last week, the governor of Norway’s central bank, Oeystein Olsen, said the country’s government could pull €8.4 billion from the fund this year.
The withdrawals are a sharp reversal on investment patterns in previous years. State-owned funds allocated at least $48 billion to asset managers in the four years to the end of 2014.
Michael Maduell, president of the Sovereign Wealth Fund Institute, a US-based consultancy, said: “Outflows will continue for many funds, including Norway’s sovereign wealth fund, which [will] have a serious impact on global equity prices.”
Sovereign funds, which collectively manage $7 trillion in assets, also pulled money from Invesco, Ashmore and Northern Trust, the asset management companies, last year.
The asset management arms of JPMorgan, BNY Mellon and Goldman Sachs, the US banks, similarly suffered sovereign redemptions, according to Morgan Stanley.
The US bank last year predicted that if sovereign redemptions continue at the same pace in 2016, listed asset managers could suffer a 4.1 per cent fall in earnings per share.
Rory Callagy, an analyst at Moody’s, said continued outflows will exacerbate existing problems for asset managers. They are already battling increased market volatility and significant stock market declines this year.
Passive products
“When you include the additional headwind from sovereign wealth funds, which had been a big area of growth for the industry, these factors add up to a challenging year,” he said.
According to eVestment, state funds redeemed large chunks of money from passive products in particular. More than $7 billion was withdrawn from passive funds offering global equity exposure in the fourth quarter of 2015 alone.
In contrast, sovereign funds have increased their exposure to less liquid asset classes such as private equity and infrastructure. They invested at least €21.3 billion in private debt and equities last year, up from €16.9 billion in 2014, according to S&P Global Market Intelligence, the data provider.
While some oil-rich funds are pulling cash from asset managers, others, particularly in Asia, have increased their allocations to external managers, according to Jeffrey Levi, a partner at Casey Quirk, the consultancy.
Tom Shippey, chief financial officer of Ashmore, which suffered $10 billion of outflows from investors last year, said: “The oil sovereigns are not all the same. While some have been requesting redemptions, others are continuing to invest.”