Conspiracy? What conspiracy?

Much has been said about sovereign wealth funds and their potential benefit or risk. But how much of it is true?

Everyone likes a conspiracy theory and anything with opacity is a sure-fire winner to gain attention. But let us start off with what sovereign wealth funds are and why some financial advisers are so worried about them.

Imagine if you owned Wellington boot company, would you want, therefore, separately to invest your gains in Wellington boot companies or umbrella manufacturers for that matter? Hardly. Sovereign wealth funds make large domestic gains and simply want to diversify their risk by buying ice cream companies, to continue with the example.

Four of the biggest players are reported to be the United Arab Emirates, with $875bn (£437bn); Norway, with $380bn; Singapore with $330bn; and Saudi Arabia $300bn. Interestingly, but adding to the conspiracy, only Norway's numbers are wholly correct as they have opted for full disclosure while the others have not and are estimates. The IMF believes the total value will be over $10 trillion by 2012.

Countries have learned from the Golden Guano effect. In 1956 Kiribati, a pacific island, mined this fertiliser, but realising it was due to run out the people invested the profits to secure their future. Today guano is no more but the returns on its $400m fund boost the economy by a sixth.

I am in Norway as I write, and everyone here is proud of the fact they are saving for the future by banking today's oil profits. Even though they produce vast oil, their fuel is more expensive than ours. Governments who own sovereign wealth funds simply know that to invest their hard earned cash at home would mean they risk driving domestic inflation upwards, and so they venture abroad.

While I can understand concerns, it is little more than paranoia. Most positions the sovereign wealth funds take are long and passive and they risk massive losses in trying to offload large holdings quickly. Indeed, the positions are without any real strength in that they are too small to have any power, so concerns of a foreign government controlling UK banks are unfounded.

The different funds have different objectives - for example, Norway's is a pension fund and Russia's is a stabilisation fund against high energy prices. China and South Korea, however, want the best returns and access to resources for their developing economy.

Sovereign wealth funds' strength is further undermined when you see that they only account for 2 per cent of the total world's traded securities, although they have more equity than private equity and hedge funds.

Indeed, some of their decisions cannot really be seen as aggressive as they have bailed out many of the larger banks. Concerns over whether or not they have the ability to move markets can be evidenced on some recent purchases. Was Barclays a good investment for a sovereign wealth funds at close to 700p or would it have been better to wait until its price hit this year's all time low of 238p? The massive investment did not support it and the Chinese sovereign wealth fund that paid $3bn for its stake in Blackstone, which is now worth closer to $2bn, is another example of its lack of ability to force a stock or market.