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Sovereign Wealth Funds May Sell $404 Billion of Equities

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  • Largest funds held $3.04 trillion of stocks at end of 2015
  • Direct investments dropped to about $114 billion last year

Sovereign wealth funds may withdraw $404.3 billion from global stock markets this year if crude prices stay between $30 to $40 per barrel as oil-rich nations seek to shore up their finances, according to the Sovereign Wealth Fund Institute.

QuickTake Oil Prices

The value of listed equities held by the world’s largest wealth funds will probably drop to $2.64 trillion this year, from about $3.04 trillion at the end of 2015, the Las Vegas-based SWFI said in an e-mailed report sent Monday. Withdrawals are set to approximately double from last year, when sovereign funds sold about $213.4 billion of equities, it said.

"The era of petrodollar-filled wheelbarrows being dumped into giant vats seems to be numbered," according to the Institute. "Commodity wealth funds have to be concerned about the state of their country’s finances, since many were created to either be stabilization funds, intergenerational savings vehicles or a combination thereof."

Sovereign funds from Qatar to the United Arab Emirates and Russia, which amassed about $7 trillion of assets as oil soared higher than $100 a barrel, are now liquidating investments after a more than 70 percent slump in crude since 2014. During the boom, oil countries led a surge in investments in the U.S. and Europe, buying stakes in iconic companies such as Barclays Plc as well as trophy assets including Manhattan hotels, European soccer clubs and London luxury homes.

Heydays Over

“The commodity-price scenario changed sovereign institutional investor behavior from their heydays starting in 2004, which include investing in the Chrysler Building, Chicago Parking Meters and bailing out banks like Citigroup to make them more focused on where capital is being allocated," according to the report.

Direct investments by sovereign funds also dropped to $113.9 billion in 2015 from $122.9 billion a year earlier, the report said.

Funds based in the oil-rich Persian Gulf, such as the Abu Dhabi Investment Authority and Qatar Investment Authority, are facing the most "financial distress", the report said, while Russia has also "steadily been depleting its sovereign wealth fund to finance large-scale projects, fund parts of government and attract direct investment," it said.

Abu Dhabi is reassessing its largest state companies with an eye toward selling assets, according to people with knowledge of the matter. Saudi Arabia’s net foreign assets tumbled more than $19 billion in December as the kingdom withdrew reserves.

Norway, the world’s biggest wealth fund, hasn’t been "impervious to the oil glut" either, the SWFI report said.

Officials who supervise the $780 billion fund haven’t even discussed the possibility of shifting strategy, according to Egil Matsen, who last month started as the new deputy central bank governor in charge of oversight of the investor. The government this year plans to make its first withdrawal since the fund got its first capital infusion in 1996.