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Hedge fund is said to spurn Saudi Arabia’s cash after journalist’s murder

Mohammed bin Salman, Saudi Arabia’s crown prince

A hedge fund has told investors it returned money to Saudi Arabia following the murder of columnist Jamal Khashoggi, according to people with knowledge of the matter.

The move is a rare rebuke to one of the world's most influential investors. Pharo Management (UK) in December gave back about $300 million that it had previously managed for the kingdom's central bank Saudi Arabian Monetary Authority, known as SAMA, one of the people said, asking not to be identified because the information is confidential.

Guillaume Fonkenell, 54, who founded Pharo, told some investors in January that the decision was made to uphold its principles due to concerns about Mr. Khashoggi's death at the hands of government agents last year, the person said.

The move highlights lingering disquiet about Saudi Arabia's human rights record under Crown Prince Mohammed bin Salman, whose ambitious plans for economic redevelopment have been overshadowed by allegations since October that he engineered the writer's brutal killing in the kingdom's Istanbul consulate. The heir to Saudi Arabia's throne, who is often referred to as MBS, still has the crucial support of President Donald Trump, and most Wall Street firms and a number of nations have chosen to continue doing business with the wealthy kingdom despite widespread condemnation of the murder.

Saudi authorities deny the prince played any role in Mr. Khashoggi's death.

A spokesman for Pharo, which managed $9.7 billion at the end of January, declined to comment. A representative for SAMA, which acts as the custodian of the kingdom's foreign reserves, didn't respond to several calls and emailed requests for comment.

Investor pullback

Saudi Arabia's state-owned investment firms — flush with cash and eager to generate returns that will help offset the impact of depressed crude prices on the oil-rich economy — are one of the biggest sources of capital for asset managers globally. While top financiers including J.P. Morgan Chase's Jamie Dimon, BlackRock (BLK)'s Larry Fink and Winton Group founder David Harding pulled out of the prince's flagship investment event in October, their message was dimmed when less-senior executives participated in the conference.

Mr. Fink said in November that he wasn't "ashamed" of doing business in Saudi Arabia and expects to continue to invest in the country.

In December, the Massachusetts Institute of Technology said in a report the school should maintain relations with Saudi Arabia despite concerns around the murder that sparked outrage on campus.

Other companies have attempted to penalize Saudi Arabia following Mr. Khashoggi's death and dismembering.

British billionaire Richard Branson suspended talks with Saudi Arabia's Public Investment Fund shortly after the initial media reports about the columnist's disappearance, calling it a potential game-changer for companies doing business with Saudi Arabia. The sovereign wealth fund had committed to investing $1 billion in space companies controlled by Branson's Virgin Group. Talent agency Endeavor also sought to terminate a deal to sell a $400 million stake to PIF.

Pharo is potentially the first hedge fund to go to the extent of refusing to manage money for the country. The decision comes at a time when the $3 trillion industry finds itself engulfed in a fierce battle to attract capital as investors revolt against high fees and mediocre returns. Clients pulled out $37.2 billion from hedge funds in 2018, according to eVestment data.

PIF, the most well-known of Saudi Arabia's sovereign wealth funds, has made a series of investments in companies such as Tesla and Uber Technologies, as well as a $45 billion commitment to SoftBank Group's Vision Fund.

Until recently, Saudi Arabia invested the bulk of its surplus through the central bank. Net foreign assets held by SAMA were over 1.8 trillion riyals ($480 billion) in January.