Fears over sovereign wealth funds pulling assets overblown, Morgan Stanley says

Fears that sovereign wealth funds would pull out of equity markets – say, as some countries tried to shore up their public finances in the face of lower oil prices – and the impact that might have on asset managers and banks were “overblown,” analysts at Morgan Stanley found.

Only 60% of SWF’s assets, totalling approximately $7tn (£4.64bn), are held by oil producing nations and the pressures on their state finances vary depending on the economy in question, they argued in a research report sent to clients.

An "extreme" bear-case suggested potential earnings risk of 0.1-7.1% (average: 2.1%) if all SWFs redeemed all externally managed assets, the broker said.

Among the potentially most affected would be those firms with performance challenges, especially those whose product is more skewed towards emerging markets, such as Aberdeen Asset Management or Ashmore.

Other retail-focused ones such as Henderson Group – which have minimal exposure to SWFs – were also well positioned, alongside alternative managers which manage drawdown funds which lock-up capital for more than ten years’ time.

Their research identified over $1.1tn of public equity holdings for 11 SWFs, representing about 24% of assets under management. The proportion for oil-related SWFs was lower still at 15.8%.

Among the sectors that screened toward the top of the single-name holdings list were: European autos, energy and banks.

The top 40 holdings had underperformed broader markets by 400 basis points year-to-date, while the top 10 foreign holdings had underperformed by over 900bps YTD.