By Steven C. Johnson
NEW YORK (Reuters) - With more money on hand than the entire hedge fund industry, investment funds controlled by governments in Asia, the Middle East and elsewhere are fast becoming the 800-pound gorillas of global markets.
But their super-secretive style -- the majority keep their portfolio allocations under wraps and several are still setting up shop -- makes investors nervous.
"The issue is they are largely unregulated, and nobody is aware of what risks they're taking," Brian Garvey, senior currency strategist with State Street Global Markets, said at the Reuters Investment Outlook Summit this week.
Sovereign wealth funds, as these state-owned investment vehicles are known, are not new. Kuwait, the United Arab Emirates and even Alaska got into the game more than 30 years ago, setting up rainy day funds for times of low oil prices.
But huge export revenues and lofty energy prices have since swelled official savings to unprecedented levels.
China alone is sitting on more than $1 trillion in foreign exchange reserves, the result of a large trade surplus and central bank intervention to keep the Chinese yuan weak.
In the past, countries parked most of their savings in safe, highly liquid government bonds.
But with more money on hand today than they would ever need to pay for imports or defend their currencies in a crisis, countries are being forced to put the money to better use. Continued...
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