The private equity market has seen a new powerful actor emerge over the last months. Sovereign Wealth Funds (SWFs) now control assets worth $3 trillion and are thus a force to be reckoned with in a world stock market that was worth $50.3 trillion at the end of 2006. Between 2005 and 2007, SWFs acquired major stakes in renowned Western corporations: Sainsbury, MGM-Metro Goldwin Mayer, as well as financial institutions such us Barclays, HSBC, Blackstone, and the London Stock Exchange.

  SWFs have come to the rescue in the midst of the subprime crisis, bringing fresh cash to Western capitalism. After politicians and editorialists branded hedge funds as swarms of locusts, they have started to look apprehensively at the processes of financial colonization enacted by the wealth funds of Gulf states ( (Abu Dhabi Investment Authority, Kuwait Investment Authority, Qatar Investment Authority, Dubai World), China (China Investment Corporation), and the Far East (Singapore's Temasek and Korea Investment Fund).

  SWFs emerged as exporting countries decided to dispose of their large trade surpluses in new ways. Traditionally they had invested in US government bonds, but have now been looking for higher returns. They will not destabilized Western stock markets. In fact, their usually conservative stance (most SWFs defer to existing management, do not interfere with corporate strategies, and take the long-term view) is a useful countervailing force vis-à-vis the short-term, opportunistic view usually taken by hedge funds. Plus, investments made by SWFs are not highly leveraged, and this is a respite in times like these when liquidity is scarce and expensive to obtain.  

  However three worries remain. Firstly, there is little transparence on asset allocation and portfolio composition, when it comes to SWFs. These people have a very low level of disclosure. Secondly, what are the actual long-term objectives pursued by SWFs? So far, they have had a passive attitude with respect to targeted companies. But it cannot be excluded this will change at some point in the future, and they will start influencing management strategies, possibly to the detriment of the host economy and to the advantage of the economy of origin. Thirdly, one cannot avoid remarking that SWFs signal a return to state capitalism, after the wave of liberalization and privatization that seemed to have superseded it. Commentators fear that the stakes controlled by SWFs could fall under the political control of unsavory foreign governments.