Gulf countries' international investments through sovereign wealth funds or government-owned entities was one of the main focus areas of discussion at the Group of Seven foreign ministers meeting yesterday.
The meeting includes finance ministers and central bank chiefs from the seven leading industrialised nations - the US, Japan, Germany, France, Britain, Italy and Canada.
"G-7 members particularly concerned about the recent aggressive investments of these state-owned funds especially from the Gulf and China taking positions in strategic assets across the world. Their lack of transparency adds a security angle to these acquisitions," said a source close to the meeting.
The meeting plans to apply pressure to these state-owned funds through a joint resolution calling for more transparency in investments.
These foreign funds have been around since the 1970s but have become much larger because of the surging trade surpluses in Asia and the Middle East.
Morgan Stanley estimates the combined size of these funds at $2.5 trillion in assets and plays an expanding role in the global economy. Holdings of these funds are projected to reach $12 trillion by 2015.
The G-7 members are increasingly concerned about some of the acquisitions by Gulf states such as those by the UAE, Qatar and Saudi Arabia in Europe.
The recent offer by Borse Dubai to acquire Nordic stock exchange operator OMX and Borse Dubai and Qatar's acquisition of large stakes in London Stock Exchange, and Dubai's plan to acquire about 20 per cent stake in Nasdaq are seen as potential bids by state-owned funds to control strategic assets across the world.
The US is also increasingly concerned about the clout of these funds. Securities and Exchange Commission chairman Christopher Cox told Congress recently the agency was "grappling with how to handle the rising prominence of sovereign wealth funds in the global capital markets".
He added that they "are larger than the entire world's hedge funds combined and they are significantly less transparent".
Delegations for the Gulf states and China are meeting the G7 members at an informal dinner meeting hosted by Treasury Secretary Henry Paulson, who invited representatives from eight nations with sovereign wealth funds.
The recent financial turmoil and heightened exchange rate tensions are also high on the agenda.
Financial markets around the world were shaken in August as investment firms began to write off the value of risky US real estate investments and lenders began to tighten credit. ( Gulf )