Governments feared to seize sovereign fund money if oil stays cheap

Oil pumpsA majority of sovereign wealth funds in the Middle East say they fear their governments will take money from them if oil prices stay low.

The time limit for many would be the end of 2016, assuming the price of a barrel of Brent crude, currently around $48, is still at low levels.

“Governments might want to have some of the sovereign fund money back,” says Nick Tolchard, Middle East head for asset manager Invesco. “We won’t see radical changes in behaviour for at least another year, assuming oil stays where it is. But from the end of next year, if oil is at $40, you could see withdrawals.”

Tolchard was speaking at a press conference in Dubai to reveal the results of an annual Invesco survey of asset management in the Middle East.

The survey, which was based on interviews with authorities including sovereign wealth funds, found that two-thirds of sovereign wealth funds in the Middle East say low oil prices put funds at risk of withdrawals.

However, the sovereign funds said they were better placed to handle cash demands from their governments than in previous years. This is partly due to better governance standards and risk control mechanisms that were installed after the financial crisis of 2008-09.

In addition, Tolchard says the sovereigns have been stress-testing their portfolios to deal with heightened volatility, which has given them faith in their ability to weather difficult environments.

©2015 funds global mena

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