Key policymakers and experts clashed yesterday over the growing dominance of sovereign wealth funds and whether their activities were likely to prompt a regulatory crackdown.

Government-run funds from the Middle East and Asia have sparked concern after riding to the rescue of stricken Wall Street banks in the wake of last summer's credit crisis.

Oil-rich nations such as Abu Dhabi, Dubai and Qatar, as well as funds and banks in Asia, have thrust themselves on to the world stage with an injection of $60billion (£30.7billion) into banks hit by the mortgage debacle in the United States. In the past few weeks, the funds have poured nearly $20 billion into Citigroup and Merrill Lynch.

According to a Davos survey, 81 per cent of delegates at this year's World Economic Forum believe that sovereign wealth funds, private equity and hedge funds are the new power brokers in the global economy.

Sovereign funds such as Abu Dhabi's Mubadala have also invested in private equity firms, including Carlyle, the American buyout giant, and Och-Ziff, the hedge fund. Apax, the British buyout group, is seeking to sell a 10 per cent stake in itself to a clutch of Middle East and Asian funds.

David Rubenstein, the co-founder and head of Carlyle, told The Times that he believed that the funds could run into problems if they bought things without explaining their actions or intentions, in the same way that the private equity industry has been attacked for its secrecy. “But I don't think there is going to be a gigantic backlash,” he said in Davos.

Ultimately, Mr Rubenstein believes, the funds will be made to draw up a code of conduct to ease fears over a lack of transparency. As well as propping up banks, he said, the sovereign funds would also replace them, by providing debt to buyout groups whose hands are tied at present by the lack of available financing.

Mr Rubenstein was echoing remarks by Mervyn Davies, chairman of Standard Chartered, who said that the funds should agree to a code of conduct.

Michael Klein, chairman and co-chief executive of markets and banking for Merrill Lynch, said that there needed to be a clear understanding of how the funds operated, but he said that an over-reaction to their growing influence risked “throwing the baby out with the bathwater”.

He said: “I would make an argument today that the greatest single benefit to the longevity of the US financial structure is investment made by sovereign wealth funds into [financial institutions].”

Merrill Lynch, which has made big sub-prime-related write-offs, recently received a large capital injection from Singpore's Temasek fund and is negotiating for more money from Middle Eastern government-backed funds

Ibrahim Dabdoud, chief executive of the National Bank of Kuwait, said fears that sovereign funds would gain more political clout with their stakebuilding were “really pathetic”. He said: “The GCC [Gulf Cooperation Council] sovereign wealth funds are not political players, they are financial players. Such funds are really a way of securing diversified funds when the importance of oil declines in the future.”

Larry Summers, who was US Treasury Secretary in the Clinton Administration, told the Davos forum yesterday that the big strategic stakes in banks such as Citigroup and Merrill Lynch by government-controlled overseas funds raised “profound questions”. It could not be a matter of “political indifference”, he argued.

Mr Summers said: “If a bank that has sold substantial preferred stock to a foreign government gets into trouble, is that going to become a matter of negotiation between the two governments?”

Mr Summers said he shared concern over risks of an outbreak of protectionism and of over-reaction to sovereign funds' growing world role, but that it was surprising that some free-market advocates in Davos were suggesting that the idea of “cross-border nationalisation” did not raise important issues.

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