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SWF safety net disappears amid commodities rout

According to a report from Bocconi University in Milan, the flow of funds from Sovereign wealth funds (SWFs) that formed a safety net during the last financial crisis of 2008/09 in the form of direct investment has disappeared. SWFs are investing less money now, compared to last five years. In 2015, the SWFs invested only $48 billion directly which is 57 percent lower compared to 2008, when they invested $112 billion.

World’s largest SWFs belong to countries producing natural resources, mainly oil. Norway, which is major oil exporter has world’s largest SWFs, followed by Saudi Arabia and Qatar. Due to lower oil price these funds have come under tremendous pressure to either cut down their investments, invest in domestic projects or just withdraw. In addition to that SWFs have become more risk averse. The research has found the SWFs to be investing in safe assets such as Utilities, hotels, and other properties as much as 57 percent of their money compared to 15.5 percent back in 2008.

Investments via asset managers have also been going down. According to data from eVestment, SWFs have withdrawn $46.5 billion from asset managers, which are adding pressure to hedge funds and companies like BlackRock. This trend is concerning and could lead to a mega asset selloffs with the SWF safety net missing, should another crisis hit the global economy.

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