Stop whining about sovereign wealth funds

DAVOS, SWITZERLAND (Fortune) -- They may have ridden to the rescue of Citigroup (C, Fortune 500) and Merrill Lynch (MER, Fortune 500) in the past couple of months, but the rise of so-called sovereign wealth funds - huge state investment vehicles from places like Russia, Kuwait and Singapore with billions of dollars to invest - has sparked a nervous reaction in the U.S. and prompted official calls for the funds to be subject to an international code of conduct.

But at the World Economic Forum in Davos, where their new clout has become a big issue, the funds themselves have been delivering a fairly blunt message: stop whining and just learn to love us. Aleksey Kudrin, Russia's finance minister, told a panel discussion today that the U.S. needed to get used to the idea that "there has been a redistribution of economic wealth and power." U.S. and other Western companies had for years invested in emerging markets without any restrictions, he said, so why should limitations be imposed now that the tables were turning?

His remarks were echoed, only slightly less gruffly, by top Kuwaiti and Saudi officials. "All the fear created these days has no basis - it's all about 'if' and 'suppose', there's nothing real," said Bader M. Al Sa'ad, managing director of the Kuwait Investment Authority, which dates back more than half a century. Muhammad Al Jasser, vice-governor of the Saudi Arabian Monetary Agency, pointed out that hedge funds weren't being subjected to special restrictions - despite pressure from countries such as Germany and France - so there was no reason for sovereign funds to be subjected to them either, and he warned about "creating a strawman." Even the finance minister of Norway, which has been funneling some of its oil and gas revenues into a $380 billion fund sovereign fund, quipped: "they don't like us but they need us."

Sovereign funds currently are estimated to total about $2.5 trillion (about half the size of hedge funds), and while some of that is invested in stocks, a large part is in treasury bonds or cash. Especially at a time when the dollar has been dropping, some are now seeking better returns.

The funds themselves insist that when they do invest in companies outside their borders, they are not merely benign, but in fact model long-term investors. The Kuwaiti fund, for example, has been an important and stable investor in Germany's Daimler since 1969, and in Britain's BP since 1986. Their stabilizing role in the current credit crisis by injecting cash into U.S. banks is widely acknowledged in the financial world. "What would we be doing now if that capital had not been accumulated and was not available?" asked Goldman Sachs (GS, Fortune 500) CEO Lloyd Blankfein.

And, so far, at least, the funds all appear to prefer a passive approach to their investments. Stephen Schwarzmann, chairman and CEO of private equity firm Blackstone Group (BX), which sold a $3 billion stake to China's state investment agency shortly after its IPO last year, said Blackstone had offered seats on the board to the Chinese, but that they had refused.

Yet for all their protests and talk about double standards, the funds themselves realize they have an image problem that could yet turn into a political and economic one. Although there have been to date no huge controversies over political interference or other inappropriate behavior, the public relations have not always been smooth. The International Monetary Fund is taking a close look at the ways the funds operate and the G7 nations are expected to discuss its findings at their regular meetings this year. National governments in countries from the France to the U.S. have the ability to block some business deals or at least make life difficult for the acquirer, as Dubai Ports World discovered two years ago.

So while sovereign wealth funds want the world to trust them, there's quite a lot more they could do to increase confidence in their benign and non-political nature. Even fund officials privately admit to that. Talal Ali Al Zain, the chief executive officer of Bahrain's $5 billion sovereign fund - tiny by the standards of others - says that the indignant remarks by fund officials in Davos are a wounded reaction. "When there's so much attack on you, you tend to push back," he told Fortune. "We shouldn't be so defensive. We need to explain." And then some.