Should you fear the global sovereign wealth fund whirlpool?

Sovereign wealth funds have in the last decade or so been viewed as “walls of cash” by investors. Now, says Sarah Moore, they’re not so much a wall of money, as a whirlpool sucking cash out of markets.

Sovereign wealth funds (SWFs), state-owned investment funds designed to manage money put aside by a country for a "rainy day", have in the last decade or so been viewed as "walls of cash" by investors a vast source of funds waiting to be put to work in global markets. During the financial crisis, for example, SWFs were among the deep-pocketed suitors that struggling global banks turned to in their hour of need. But the crash in oil and commodity prices has seen that rainy day finally arrive for many countries, resulting in a marked change of direction for SWFs. They're no longer a wall of money, so much as a whirlpool sucking cash out of markets.

And there's no sign of the tide turning. The funds collectively withdrew around $100bn from external asset managers in the six months to September 2015. And while SWFs are "notoriously secretive", says Attracta Mooney in the Financial Times, Berik Otemurat, a former senior official at Kazakhstan's central bank, recently lost his job after warning that his nation's SWF would be "completely drained by 2026" if the government kept raiding it to prop up its economy. (Since an August 2014 high of $77.2bn, its assets have fallen by 16.8%.)

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Sarah is MoneyWeek's investment editor. She graduated from the University of Southampton with a BA in English and History, before going on to complete a graduate diploma in law at the College of Law in Guildford. She joined MoneyWeek in 2014 and writes on funds, personal finance, pensions and property.