Key figures play down fears over sovereign wealth funds

Concerns expressed about the political motivations of sovereign wealth funds - huge pools of state-controlled cash which have propped up US banks with recent investments - have been overplayed, according to leading Irish political and business figures at the World Economic Forum in Davos, Switzerland.

The behaviour of the funds, which have helped bolster banking giants such as Citigroup and Merrill Lynch recently, has been one of the hot topics at this year's forum. Their growing importance has fuelled public concern about the potential political influence they could wield.

Western officials fear that value investments by funds controlled by Russia, China and Middle Eastern nations will lead to political demands for restrictions on investment.

Telecoms entrepreneur Denis O'Brien described the concerns as "overboiled". "Sovereign funds have been investing in all the big buy-out firms like Blackstone, Carlyle and TPG for years, so what is the big deal if sovereign wealth funds take 5 per cent of Citibank?"

Bank of Ireland chief executive Brian Goggin said the concern was "a total overreaction".

"In the main, they will be very responsible shareholders. I don't think there will be any political interference. They have a huge fiduciary duty to the populations of the countries on whose behalf they are investing money."

BP chairman Peter Sutherland, an organiser of Davos, said: "Sovereign funds played a very beneficial role in recent events. They have helped to support the political and economic system that we have." Fears about the global banking crisis, the threat of a global economic recession and the €4.9 billion rogue trading losses at Société Générale continued to be debated on the third day of the Davos summit.

The financial turmoil has created a gloomy atmosphere all week in the Swiss resort, prompting Reuters chief executive Tom Glocer to remark that it was "unfashionable to be optimistic".

Sony chief executive Howard Stringer complained about "the aroma of disaster wafting through the halls of Davos", adding, jokingly: "It is easy to be gloomy because there are lots of economists here and, if you laid them end to end, it would be great."

The sombre mood has been largely generated by the forecasts of the speakers at Davos. US central banker Malcolm Knight, chief executive of the Bank of International Settlements, said there was no end in sight to the credit squeeze and this may trigger a big slowdown in the US and affect other economies.

"We don't know how far this de-leveraging and weakness in the pricing of risky assets will go. If it begins to significantly affect the real economy, in the US in particular, then it creates the risk that there will be a significant period of weak global economic performance," Mr Knight said.

British prime minister Gordon Brown urged governments to take simple steps to head off the risk of future financial crises. He called for more transparency in financial markets and sound fiscal policies.

"There is also a danger, with bad news still to come, of being over-optimistic about what we can achieve and over-emphasising the silver lining at the expense of the clouds," he said. - (Additional reporting, Financial Times service, Reuters)