Saudi Arabia seen cutting funds held with asset managers

Added 28th September 2015

Saudi Arabia has reportedly withdrawn tens of billions of dollars from global asset management firms in response to the ongoing slump in oil price and the recent volatility in world equity markets.

Saudi Arabia seen cutting funds held with asset managers

The Financial Times reported that Saudi Arabian Monetary Agency’s foreign reserves had slumped by nearly $73bn since oil prices started to decline last year, while the kingdom keeps spending to sustain the economy and fund its military campaign in Yemen.

The FT said several asset managers were hit by a wave of redemption requests this month, which came on top of an initial round of withdrawals earlier this year.

Some fund managers have seen several billions of dollars of withdrawals, or the equivalent of a fifth to a quarter of their Saudi assets under management, according to the paper which it sourced its report to ‘people aware of the matter’.

The central bank has also recently approached domestic banks to finance a bond programme to offset the rapid decline in reserves.

Nigel Sillitoe, chief executive of financial services market intelligence company Insight Discovery told the FT that fund managers estimate that Sama has pulled out $50bn-$70bn over the past six months.

“The big question is when will they come back, because managers have been really quite reliant on Sama for business in recent years,” he said.

Since the third quarter of 2014, Sama’s reserves held in foreign securities have fallen $71bn, accounting for almost all of the $72.8bn reduction in overall overseas assets.

Repositioning

Other industry executives estimate that Sama has withdrawn even more than $70bn from existing managers.

While some of this cash has been used to fund the deficit, these executives told the FT the central bank is also seeking to reinvest into less risky, more liquid products.

Fund managers with strong ties to Gulf sovereign wealth funds, such as BlackRock, Franklin Templeton and Legal & General, have received redemption notices, according to the FT’s sources.

Institutions such as State Street, Northern Trust and BNY Mellon have large amount of assets under management and are therefore also likely to have been hit hard by the Gulf governments’ cash grab, the paper added.

Sama has over the years built up a broad range of institutions handling its funds, including other names such as Aberdeen Asset Management, Fidelity, Invesco and Goldman Sachs.

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Richard Hubbard

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Richard Hubbard is the group editor at Last Word. He is responsible for the editorial content of International Adviser, Portfolio Adviser, Expert Investor and Fund Selector Asia. Richard previously worked for Thomson Reuters and has covered the financial services industry and investment themes from its offices in London, Singapore, Hong Kong and New York. Richard started his career at the Australian Financial Review in Sydney.

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