Sovereign wealth funds may have been behaving themselves so far, but do not be fooled, warn political analysts like Mr Alan Tonelson.
'SWF enthusiasts, who eagerly note that the funds so far have provided no concrete cause for concern, are tantamount to teenagers who have begun to start driving under the influence (of alcohol), and brag that they're still alive,' he said.
He was red-flagging the rogue potential of SWFs at the United States-China Economic and Security Review Commission Hearing that discussed the implications of SWFs for national security in February.
'The government must provide the adult supervision,' he urged.
Mr Tonelson is not alone in his mistrust of SWFs and fear that they could 'threaten national security' through their investments in US assets.
In February, 55 per cent of Americans polled by Public Strategies, a US consulting firm, thought investments by foreign governments harmed US national security. Only 10 per cent disagreed.
The poll findings also showed that 'opposition was particularly pronounced to investments in high-tech or financial firms, and to investments by SWFs headquartered in the Middle East or East Asia', noted professor of international politics Daniel Drezner from the Fletcher School of Law and Diplomacy at Tufts University.
Common fears are that SWFs could seek to transfer know-how and technology in Western banks and high-technology companies to their home country, noted Morgan Stanley analyst Stephen Jen.
In other words, SWFs may practise 'state capitalism'.
Dr Gerard Lyons, Standard Chartered chief economist and group head of global research, coined this phrase to describe the 'use of government-controlled funds to acquire strategic stakes around the world'.
Mr Tonelson also speculated that SWFs' control over US assets may give them more diplomatic negotiating power over Washington.
He posed this question: If the financial turmoil persists, would Washington dare to stand up to Beijing if a cross-strait crisis erupted?
After all, the Chinese government holds big stakes in some big American financial institutions, he pointed out.
US Senator Barney Frank was more circumspect: it depends on which country the SWF comes from, he argued.
'I have been asked from time to time what I think about sovereign wealth funds. To some extent, that is like asking me what I think about countries,' he told a US hearing on foreign state investment in the US economy in March.
'Some I like a lot, some not so much. The fact is, sovereign wealth funds are reflections of their countries; some are fine and some make me nervous.'
While he did not name names, other politicians have been more explicit about which countries' SWFs they fear more than others.
Mr Charlie McCreevy, the European Commission single-market commissioner, for one, feels no love from Russia. Likening Russia's state-owned gas monopoly Gazprom to an SWF, he darkly speculated about a new age of industrial espionage, unless funds like those in Russia were handcuffed by rules.
But a more immediate concern is the impact of SWFs' massive financial firepower on the stability of the financial system.
Quintain chairman John Plender highlighted the 'threat these flows pose to high corporate governance standards in the developed world'. He wrote in the Financial Times in January that if SWFs move a lot more money into equities, this may artificially lower the cost of capital.
This may mean that companies that are more lax in their corporate governance standards may still be able to get funding from SWFs, instead of being punished by the market for their sloppiness.
SWFs also contribute to soaring prices of assets and commodities, others charge.
Institutional investors, including SWFs, have been pouring more money into oil and other commodities to hedge against inflation and secure supplies. This may have helped to drive up prices, said analysts like Mr Larry Goldstein, director of the Energy Policy Research Foundation.
On a broader scale, the concern about SWFs reflects a growing uneasiness in the West about the rising power of emerging economies such as China, Russia, India and the Middle East.
The richest SWFs come from developing countries that are fast replacing the rich nations as the powerhouses of the global economy, supplying them with everything from oil to commodities to cheap underwear.
As research consultant Monitor Group puts it: 'There is nervousness about the rise of nations outside the 'club' that has dominated international finance since World War II and the potential corresponding loss of power and influence.'
Indeed, the Group of Eight rich countries met in Germany last September and issued a strident call against 'investment protectionism'.
Others have railed against how prosperous Asian countries like China and Middle Eastern oil producers are using the West's money to take over the West's assets.
They point out that the West had outsourced a lot of production to the developing countries. The latter then sell the cheap goods back to the West and amass trillions of foreign currency reserves. Meanwhile, the oil producers are also getting jetloads of US dollars for barrels of black juice.
Even investment whiz Warren Buffett, an SWF supporter, has been losing sleep over this phenomenon since 2005. He painted the worst-case scenario: the US could end up with a 'sharecropper economy' where Americans largely slog for foreign-owned firms.
This is because the US has to 'give away a little part of the country' each year, as long as it is saddled with massive foreign trade deficits, he said in a letter to shareholders of Berkshire-Hathaway, which he heads.
Perhaps SWFs should resign themselves to the reality that mistrust about their motives will never go away.
This is because of the history of 'misunderstandings, complexity, and obscurity involved' with SWFs, said Mr Knut Kjaer, ex-CEO of Norges Bank Investment Management, Norway's SWF.
'What is true is that there is always a price to be paid for growth, and the fact is that the world relies on financial foundations different from the old model of unipolar American power,' he wrote in an article published in the Financial Times in April.
Still, the balance of power from the West to the Middle East and Asia may not shift drastically yet.
'These new forces of capitalism may finance the leaders of the next century, but they are unlikely to topple them,' said Mr Kjaer.
This article was first published in The Straits Times on June 28, 2008.
