When Citigroup announces earnings this morning, it is also expected to announce a capital infusion from the Kuwait Investment Authority. On Thursday, Merrill Lynch will also likely bear good news while reporting year-end results: an expected $4 billion capital infusion from — you guessed it — the Kuwait Investment Authority.

The petrodollar and export-fueled sovereign wealth funds of the Middle East and China are stepping up to the plate to bail out a growing number of U.S. investment banks, receiving equity stakes in return for more than $20 billion shelled out to date. While the beleaguered firms have welcomed this timely liquidity, the growing influence of these funds is beginning to raise alarms. After all, it is not so long ago that politicians and commentators ran Dubai Ports World out of town.

The biggest concerns about the funds are that many do not make public their investments or their strategies; that some are thought to be using considerable leverage, and that some are taking large direct interests in publicly owned companies. In short, they have suddenly become bigger and more aggressive investors, and we don’t know what they are up to.

The real issue, though, is that the funds are managed and owned by Arab and Asian countries with which we have political differences. There is concern that these funds might someday choose politics over investment returns. So far, this is a theoretical argument. Mostly, the investments to date have secured minority interests in publicly owned companies, and the investors have played passive roles.

However, as funds seek partnerships and equity tie-ups with private equity firms such as Blackstone (China) and Carlyle (Abu Dhabi), their appetite for more meaningful stakes could grow. Indeed, most observers assume that these investments and other similar interests are calculated to import needed financial expertise. Dubai’s near-20% interest in Nasdaq and Abu Dhabi’s purchase of Barneys New York could be the first wave of possible takeover activity.

What are the risks to America of such a trend? In a letter to clients, law firm Wachtell, Lipton, Rosen & Katz cites the view of Treasury Department officials that the biggest risk is that SWF buyouts might spur new protectionist measures. Indeed, the Government Accountability Office has just begun work on a study of the SWFs at the request of Senator Shelby, the ranking minority member of the Senate Banking Committee.

Yvonne Jones, who is in charge of the report, says it will review what impact, if any, the SWFs are likely to have on the U.S. economy, and whether the government is effectively monitoring SWF activity. The report could lead to Senate hearings on the topic, Ms. Jones says, possibly leading to greater oversight.

How to consider the growing role of these entities?

At a recent meeting hosted by the New York Society of Security Analysts, an economist with the Federal Reserve Bank of New York, Mathew Higgins, put the size of the funds into context. Mr. Higgins says the SWFs today manage roughly $2.5 trillion. That compares with $22 trillion managed by mutual funds globally, $18 trillion that is invested in pension funds, and $16 trillion that is held by insurance companies. The SWFs, he says, are “important but not dominant in international financial circles.” Overall, the SWFs today account for roughly 1.2% of global wealth.

They will almost certainly grow larger. Mr. Higgins estimates that by 2015, the SWFs might account for as much as 2.8% to 4% of global wealth.

“They will become more important under any assumptions, but will still remain under 5% of total world wealth,” he says. Of course, such projections hinge on imponderables, including the future price of oil and what kind of returns the funds earn in the interim.

It is in fact the quest for higher returns that has brought the funds into the sunshine. Like pension funds in America, the SWFs have begun to shift some of their money into equities and, more recently, into alternative investments such as private equity.

SWFs invest excess foreign currency reserves gleaned from an export imbalance. Most have been set up by oil exporters to manage the revenues from depleting assets.

The largest funds today are ADIA in the UAE, with estimated assets of $350 billion to $850 billion; Singapore’s Government Investment Corp., with assets of $250 billion to $350 billion; Norway’s Government Pension Fund, with $383 billion; Kuwait, with $243 billion, and China’s Government Investment Corp., with $200 billion. Overall, there are 32 active funds in 29 countries.

Although a newcomer to the table, China’s fund has become one of the most aggressive, making headlines when it bought a $3 billion stake in Blackstone early last year. Mr. Higgins points out that China’s fund has to invest aggressively to overcome the impact of the rising Yuan. Most estimates place that increase at a likely 8% in the current year; the fund will have to produce outsized returns to offset that headwind.

Indeed, the weakening of the dollar and the growing sophistication of the fund sponsors are both reasons for the emerging public face of the SWFs. Mr. Higgins estimates that some 60% of the funds now use outside investment managers. They are also increasingly raising the risk/reward profile of their investments, much as pension plans have done in the U.S. Even historically conservative Norway has increased the portion of funds dedicated to equities in the past year, to 60% from 40%. The principle concern that arises about the growth of SWFs is that these investors might one day use their investments to obtain access to sensitive technology or scarce resources. As Mr. Higgins points out, though, foreign direct investment is regulated by the government, and it can prevent company takeovers that would undermine our security. He also argues that “locking up natural resources is not an issue; commodities are traded on open markets. The more investment and production of such commodities the better.”

In hearings last fall before the Committee on Foreign Investment, a number of industry representatives argued for a continued open investment climate. Such groups are fearful that U.S. interference with cross-border investments will ultimately cause retaliation, limiting opportunities for American multinationals overseas.

This appears a reasonable concern. To date, the SWFs seem intent on using their newfound riches to diversify their countries’ revenue streams and to import know-how. They tend to be long-term investors and appear eager to avoid controversy. The spreading entanglement of these funds with the economies of the West seems likely to align the interests of nations. What could be more beneficial in the long run? Except, of course, stabilizing America’s wounded financial institutions.

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