The Strategist

Saudi Arabia Withdrew More Than $ 70 billion of Foreign Funds

09/29/2015 - 15:03

Foreign assets of Saudi Arabian Monetary Agency (SAMA), performs the role of the central bank, decreased by $ 72.8 billion from III quarter of 2014, when oil prices began falling down. This figure is almost equal to the sum of $ 71 billion, by which decreased its reserves, placed in foreign securities. Money is needed in Saudi Arabia to finance the budget deficit and the military campaign in Yemen. The country also wants to reduce the presence in the volatile stock markets, say people familiar with the situation.

Richter Frank-Jurgen
Richter Frank-Jurgen
For many years, the assets of oil-rich Gulf countries, which are under the control of Aberdeen Asset Management, Fidelity, Invesco, Goldman Sachs and other financial organizations, has grown. Now, their managers feel the effects of lower oil prices. In September, several funds were faced with a new wave of Saudi capital’s outflows, and one of the asset managers even called a significant withdrawal of funds last week "our Black Monday."

Over the past six months, SAMA, as estimated by the asset managers, withdrew $ 50-70 billion from their funds, according to the general director of Insight Discovery Nigel Sillito. According to other industry representatives, the number is even bigger. “The question is when the funds will be brought back as business managers have been really quite dependent on SAMA in recent years”, - says Sillito.
Partly, Saudi Arabia has used these funds to reduce the budget deficit, as its economy is heavily dependent on oil exports. A year ago, a barrel of Brent cost almost $ 100. Now, at auction on Wednesday, the price was less than $ 48. Yet, according to the asset managers, the Saudi central bank also wants to reinvest in assets less risky and more liquid. "They do not like the degree of dependence on the world's stock markets", - said one of them.

Management companies such as BlackRock, Franklin Templeton and Legal & General received notice of intention to withdraw funds, say people familiar with the situation. "We are not surprised much - said one of the fund managers. – For a while, SAMA has been doing very risky investments, and we are prepared for this."

BlackRock, which, according to the bankers, manages the largest funds from the Gulf countries, has reported a net outflow of capital in the EMEA (Europe, Middle East and Africa). In II quarter, it was $ 24.1 billion, while $ 17.7 billion inflow was marked in the I quarter. The market participants partially explain this by outflow of Saudi Arabia and the sovereign funds of neighboring countries, such as Abu Dhabi.

BlackRock and other fund managers declined to comment or did not respond to requests. SAMA did not respond to a request for comment either.