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Sovereign investor flows to global markets turn net positive in Q1

[LONDON] Sovereign wealth fund (SWF) flows to stock and bond strategies managed by external asset managers turned net positive in the first quarter for the first time since 2014, data from research firm eVestment showed on Tuesday.

A net US$4.3 billion was placed with third-party fund managers by sovereign investors in the first three months of 2018 compared with a net outflow of US$8.3 billion in fourth quarter 2017, ending 14 consecutive quarters of net outflows.

The figures from eVestment, which collates data from about 4,400 firms managing money on behalf of institutional investors, showed that allocations to non-US passive equity strategies were the main driver of the change.

In total, this segment attracted net inflows of US$6.6 billion, with passively-managed European equity strategies attracting US$5.6 billion and passive global emerging markets equity pulling in a net US$4.2 billion.

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"This is a more positive set of data for those servicing SWF investors, however the dominant preference for passive exposure is not necessarily a positive for active managers," said Peter Laurelli, global head of research at eVestment.

Europe and emerging market equities attracted investors in the first quarter following gains in 2017, with European stocks up 7.6 per cent and emerging markets up 34.3 per cent.

Data from other segments were less encouraging, with global equity strategies suffering net outflows of US$3.1 billion in total, while global fixed income lost US$987 million overall.

Mr Laurelli noted that only 38.8 per cent of products reported net inflows from SWF investors, although this was the highest since the fourth quarter of 2016's 40.6 per cent.

The last time third-party fund managers enjoyed net inflows from their SWF clients was the second quarter of 2014, with US$7.3 billion. In subsequent quarters, a combination of low oil prices, low bond yields and volatile equity markets prompted sovereign investors to pull money from listed securities.

Some rainy-day SWFs were tapped by governments to fill budget gaps, whilst others sought better returns in unlisted infrastructure, private equity or real estate investments.

However, oil prices have recovered from a January 2016 low of under US$30 a barrel to almost US$80, the highest since late 2014, as supply has tightened. Meanwhile, some SWFs are thought to be hitting the upper limit on their allocations to private markets.

REUTERS