Slumping financial markets are taking a heavy toll on investors everywhere, including big sovereign wealth funds that are being looked to for help to finance a global economic recovery. Losses of up to 40 per cent on their stock holdings this year, combined with sliding oil prices, have cut the size the Gulf's sovereign funds by at least a quarter according to new estimates by two New York-based economists who track the funds. "The Gulf funds almost certainly shrunk in 2008 - despite high oil prices," said Brad Setser, an economist at the Council on Foreign Relations, discussing his work with Rachel Ziemba, an economist at RGE Monitor. "If oil stays at its current levels, the future pace of their growth is likely to slow sharply." Mr Setser and Ms Ziemba estimate that the combined assets of the Abu Dhabi Investment Authority (ADIA) and the Abu Dhabi Investment Council, for example, have fallen from about US$490 billion (Dh1.79 trillion) at the end of last year to less than $350bn. ADIA declined to comment. Officials from the council could not be reached. Although the declines would give Gulf nations less money to draw upon as they try to offset slower economic growth at home and abroad, economists say they still have ample assets to cope. "They've got lots of capital, so it's not going to be fatal," said Howard Handy, the chief economist and general manager at Samba Financial Group, a Saudi investment bank in Riyadh. Shrinkage at the sovereign funds could actually be good for the global economy, Mr Setser said, since it represented a reversal of what was a lopsided flow of savings to poorer exporting nations from wealthy net importers such as the US. Now, the US and other heavily indebted nations will instead be forced to save, and big exporters including the UAE and China will be forced to spend. "The global economic impact of a fall in oil prices now is positive, as it supports global demand growth, and right now there is a shortage of demand, not savings," Mr Setser said. "Those with large wealth funds or conservative budgets in the past can dip into their accumulated assets to finance their own spending and investment projects. That, too, helps the global economy." Because most sovereign funds still disclose little about their operations, tracking their holdings requires a fair amount of sleuthing. A few high-profile investments - such as ADIA's $7.5bn investment in Citigroup last year - are well known, but how much they hold overall and where they invest remains -largely a mystery. Estimates of how much global sovereign funds hold range as high as $3tn, a sum that has prompted some leaders to call on the funds to help finance efforts to head off the global financial crisis. "The oil producing countries, which have generated over $1tn from higher oil prices in recent years, are in a position to contribute," said Gordon Brown, the British prime minister, during a fundraising mission to the Gulf early last month. But some of the region's sovereign funds are already being tapped to beat back the rout on regional bourses. The Kuwait Investment Authority, which had an estimated $250bn at the start of the year, has already begun buying shares on the local stock market and is helping to fund a five-year, 1bn dinar (Dh13.45bn) fund to buy more. The Qatar Investment Authority, with an estimated $60bn, has said it would buy up to one fifth of the country's banking stocks to arrest their steep decline, an operation that could cost it as much as $5.3bn. And Oman last week said it would plough $390 million into its own flagging stock market. Rumours have circulated that ADIA and other UAE funds have been buying local stocks, but there remains no evidence that they have been buying, whether as part of an effort to prop up prices or simply because they see the prices as a bargain investment. Sovereign funds may soon start spending on more than local stocks. Economists say that with oil prices falling, however, some governments are going to have to dip into their various funds to help finance budget deficits. With oil now slumping back below $55 a barrel, some Gulf governments - Bahrain, Qatar and Oman - are already likely to go into the red, economists say. Even Saudi Arabia is reportedly close to slipping into a deficit as oil prices continue to fall. Oil prices will have to fall much more - to about $30 a barrel - before the UAE's own budget surplus evaporates. But efforts to support the economy, such as the funding of the new Emirates Development Bank and the Dh70bn it is depositing at local banks, will raise costs. The International Monetary Fund and some economists are also calling on governments to boost spending to offset a downturn in private-sector earnings and investment. Ample savings at sovereign funds mean that such outlays would not have to be financed by borrowing. Until 2004, for example, the Government was drawing money each year from ADIA to help fund spending programmes. It was only as oil prices started to soar that year that it was able to stop drawing on the fund's stored oil earnings and instead start accumulating assets. Estimates of ADIA's size have ranged as high as $850bn, although analysts now say that figure is likely to be highly exaggerated. Last year, ADIA spun off its domestic assets to a new counterpart, the Abu Dhabi Investment Council. Losses on investments such as Citigroup have brought that estimate down even further. Mr Setser and Ms Ziemba estimate that the combined assets of ADIA and the council were between $450bn and $525bn at the end of last year. And following likely losses in global markets, their combined value has probably now fallen by more than 28 per cent, to below $350bn. That is in line with the roughly 25 per cent losses they estimate Gulf sovereign wealth funds suffered globally. Last week, Samba Financial released its own estimate that Gulf sovereign funds would lose roughly 15 per cent of their value this year. warnold@thenational.ae