By Tim Weber
Business editor, BBC News website, in Davos
Sovereign wealth funds - government-controlled investment funds - are one of the hottest topics at the World Economic Forum in Davos. But are they really dangerous?
Richard Fuld says the funds could soon control up to $20 trillion
Picture this: You are finance minister and several very large banks in your country are in trouble. An investment fund steps into the breach and provides the much-needed cash - say $10bn (£5bn) or thereabouts. It helps to avoid a financial meltdown.
So far so good. But what if this fund is controlled by a foreign government with unclear intentions? What if such a fund also wants to buy your nation's most important ports?
And what if the fund takes a large stake in a business that is a rival to its country's national champion?
Across the Western world, politicians are grumbling, and economists and business leaders are pricking their ears.
In Davos, the session on the "myths and realities of sovereign wealth funds" was oversubscribed.
There is a certain deja vu to this debate.
Two years ago the leaders of hedge funds had to defend their track record.
Last year it was the turn of private equity firms.
Now the men and one woman in charge of some of the world's largest sovereign wealth funds took to the Davos stage to defend their track record.
Saving for the future
But what are sovereign wealth funds? Well, some countries have a lot of cash, for example from oil or gas revenues. They invest some of that money for a rainy day, or for the time after the oil runs out.
Some, like Saudi Arabia, use it to smooth out shortfalls in the government budget.
"We need these investment funds for future generations, we don't use them to speculate," said Aleksey Kudrin, Russia's finance minister.
The panellists in charge of such funds proclaimed that their intentions were pure; they were investing for the long-term, and had a total hands-off approach to the management of the companies they buy.
"Our fund started in 1953," said Bader Al Sa'ad, the managing director of the Kuwait Investment Authority. "Kuwait has been a Daimler shareholder since 1969...BP shareholder since 1986, we are one of the most stable shareholders of these companies."
"All the worries [about sovereign wealth funds] are not based on a real case, but on assumptions."
The $20 trillion investors
Maybe it is their size that is intimidating.
On a conservative estimate they have assets worth about $3 trillion.
Richard Fuld, chief executive of investment bank Lehman Brothers, predicted that - with other state-controlled firms taken into account, these countries would control $15-20 trillion in 5 years.
The owners are 15 governments, and five of them control 70% of the total.
With the notable exception of Norway, these funds are fairly secretive.
Former treasury secretary Larry Summers worries about hidden motives
They don't publish their investment strategy and are not publicly accountable.
But that doesn't make them bad, argued Mr Fuld.
They have money, the capital markets need this cash, and being long-term investors they can "stabilise the business cycle".
Stephen Schwarzmann, chief executive of private equity giant Blackstone, derided the notion that these funds were a threat: "It's almost amusing to see that pools of capital that we have always dealt with now have a new name, sovereign wealth funds, and are seen as an inherent threat."
He described the funds as "model investors", "smart, highly professional," simply looking for the best possible return for their money.
"When the Chinese investment fund took a 9.5% stake in our company there were questions in the press: 'why do they do this, what are their motives?'"
"Well, it's a non-voting investment, that was important for them...they said they don't want to vote."
But Larry Summers, Harvard professor and once US treasury secretary, had his doubts.
These funds had to understand that governments worried about possible hidden motives.
What if a state invested in a firm and then started making suggestions? Proposed to an "airline to fly to their country, want a bank to do business in their country, or want a rival to their country's national champion disabled"?
And what if a country's investment fund ran an active trading operation and - George Soros style, when he brought down the pound - decided to launch a large-scale speculative attack on another nation's currency?
Mr Summers called on sovereign wealth funds to be transparent about their investments and strategy, and sign a binding code of conduct.
While Norway's finance minister, Kristin Halvorsen, said she was happy to do that, her peers were more circumspect.
Muhammad Al Jasser, vice governor of Saudi Arabia's Monetary Agency, did not understand the call for regulation.
There had been "failures galore" in the world of hedge funds, but all attempts of regulations had been rejected, because they would "interfere with the smooth working of financial markets".
The behaviour of sovereign wealth funds had been without fail, and now they "seemed to have been found guilty before being proven innocent".
Kurt Bjorklund, one of the business leaders here in Davos and managing partner at private equity firm Permira, was sanguine: "there are no economic problems with [sovereign wealth funds], the debate is about political problems."