Page last updated at 14:36 GMT, Monday, 15 October 2007 15:36 UK

Sovereign funds may face backlash

Power plant
The energy sector could be a target for sovereign funds

The growing influence of investment funds run by foreign governments could trigger a protectionist backlash, a new report warns.

Oil-rich Gulf states, as well as fast-growing nations such as China and Russia, have poured billions of dollars into so-called sovereign wealth funds.

Governments fear these funds will take large stakes in strategic industries.

Sainsbury's and Barclays are among the UK firms to have attracted interest from these fast-growing funds.

Worth $2.2 trillion today, sovereign funds could be valued at $13.4 trillion in a decade, says the report by Standard Chartered.

"Initially these funds were set up purely as investment vehicles, but they have become more and strategic in their outlook," said Gerard Lyons, chief economist at Standard Chartered and author of the report.

Singapore's Temasek fund and the Chinese Development Bank have stakes in Barclays, while Qatar is close to acquiring Sainsbury's.

Qatar, along with Dubai, owns more than 30% of the shares in the London Stock Exchange.

Sensitive industries

Western governments worry that the funds may acquire substantial stakes in sensitive industries, such as energy and telecommunications.

Many of the funds are very secretive about their investment strategies.

United Arab Emirates
Source: Standard Chartered

The US is expected to call for a set of guidelines demanding better disclosure by sovereign funds and giving governments greater ability to scrutinise their activities when G7 leaders and the International Monetary Fund meet later this week.

Dr Lyons said some countries were considering preventing sovereign wealth funds from investing in certain industries through government-held "golden shares" or outright legislation.

"Unless we have some ground rules, we could begin to see a protectionist backlash," Dr Lyons said.

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