Record low commodity prices are driving Sovereign Wealth Funds (SWFs) that are dependent on commodity exports to tap into reserves to plug fiscal deficits, according a latest analysis by Moody’s.
“This is particularly true for Middle East and North African (MENA) sovereigns with higher reliance on oil exports and less diversified economies,” the report read.
As a result, SWFs are reported to have been withdrawing money from external asset managers at an increasing rate, Moody’s said.
Based on Moody’s crude oil price forecast (WTI crude $48 per barrel in 2016)1 , SWF redemption pressures should remain a headwind for asset managers with SWF exposure in 2016.
“SWFs are a large asset pool for asset managers, but a high reliance on commodity exports makes them vulnerable to market shocks.
“SWFs as a whole invest $3.2trn including $1.9trn in equity, $0.9trn in fixed income and $0.4trn in alternative investments and others .
“Commodity exports are the source of funds for roughly 73% of SWF assets globally. Asset managers’ Q3 2015 net flow results showed a pick-up in redemptions from SWFs. While outflows in some cases were large in size, the earnings impact was modest because redemptions were largely concentrated in low-fee passive strategies,” Moody’s said.