Should Sovereign-wealth funds be regulated?

Implications: Is the fear of sovereign-wealth funds justified? Are sovereign funds being used for nefarious objectives? Can the U.S. Securities & Exchange Commission regulate sovereign funds? 

Analysis: There appears to be mounting fear of sovereign-wealth funds.  In mid-January the governments of Singapore, Kuwait and South Korea provided over $20 billion to Citigroup and Merrill Lynch.  Were these investments made for some sinister motive?  

The Economist article suggests that sovereign funds may make investments to stifle competition, protect its own companies and industries and even possibly to engage in geopolitical troublemaking.  Considering that these funds have little accountability to regulators or even shareholder, these concerns may have some justification.  

This recent anxiety is also due, in part, to politicians doing what it is they do best and that is to place blame.  The credit crisis is real but rather than trying to resolve this crisis some politicians use it as a springboard to create fear. A U.S. Senator said this week that “Sovereign wealth funds need to assuage concerns that they will manage their investments in terms of political or economic power objectives.” [“Keep a Close Eye on Sovereign Funds: Cox,” CFO.com article at http://www.cfo.com/article.cfm/10710601?f=alerts]  

I am not aware of any evidence suggesting that these funds have or have had such nefarious objectives. Obviously, however, these funds “are not necessarily driven by the pressures of profit or loss” [Economist]. Further, U.S. Treasury Secretary Henry Paulson said recently that he met “with 30 such funds, and that all expressed that they are driven by economic intent.” [CFO.com article cited previously].  He also acknowledged that “America’s regulatory structures have not evolved with the markets.” 
 
Unlike brokerage houses which are subject to significant regulation, sovereign-wealth funds are in the main, not regulated.  The Economist article suggests that these funds voluntarily produce annual reports detailing their motives and main holdings.  They also suggest that these funds stay away from making major investments in individual companies so as to avoid political pressures. There is merit to both of these recommendations. 
 
The U.S. Securities & Exchange Commission, I suppose, could require these funds to be more transparent but for what end other than perhaps curiosity.  What if a particular fund refused to provide the information?  Prohibiting Sovereign fund investments would be difficult if not impossible to enforce. Regulation without the means to enforce them is futile. 
 
However, the need to avoid political pressures is obvious. It seems to me that it is in the best interest of these funds to voluntarily provide information on their investment strategy and major holdings.  The fact that of Singapore, Kuwait and South Korea may have saved two of the largest banks in the world will in time be forgotten by most.  Certainly, those with nationalist leanings tried not to notice that it happened.  Finally, politicians who recognize the power of ruling through fear will undoubtedly use it to their advantage. 
 
While this may indeed be wishful thinking, I believe that investments by Sovereign-wealth funds make the world smaller.  Their success will in part depend on our success. And just maybe this interdependence will lead to a “kinder, gentler world.”