It has been one of the geopolitical and business phenomenons of the year. Never has so much Asian and Gulf cash been recycled into so many Western companies in such a short space of time.

The rise and rise of sovereign wealth funds (SWFs) and their sudden love affair with the companies, especially the banks, of America and Europe is the talk of the financial markets. Merrill Lynch, for many the embodiment of Wall Street, is reportedly close to a $5billion (£2.5billion) deal with Temasek, the Singaporean Government's oldest and best-known SWF.

Blue-chip financial institutions such as Citigroup, Morgan Stanley, Barclays, the London Stock Exchange, Blackstone and UBS represent the commanding heights of Western capitalism. In a matter of months they have all seen SWFs take meaty stakes.

Funds ultimately controlled by rulers in China, Singapore, Dubai, Qatar and Abu Dhabi have all been writing large cheques and find themselves as very large shareholders in these firms.

Morgan Stanley estimates that of $55billion invested by SWFs in Western financial companies, $46billion has been injected in the past nine months alone.

But there could be much more to come. SWF assets are already at $2,800 billion and are on track to grow to $12,000 billion by 2015, Morgan Stanley forecasts, as oil and other export revenues swell the coffers of nations blessed with successful manufacturers or rich commodity bases.

Demand for higher investment returns is also playing a part. Risk-averse governments have traditionally put their spare cash into US Government bonds but the returns have been poor and in recent times negative after adjusting for the tumbling dollar.

The philosophy is still cautious but with such large sums at stake, the attitude in many SWFs seems to be that they should at least be starting to diversify into other asset classes.

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