Are sovereign wealth funds stupid?

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They've lost tens of billions of pounds pouring money into the likes of UBS, Citigroup and Merrill Lynch, and they're still back for more.

Barclays is said to be close to raising 4bn from unknown sovereign sources, thought to include the likes of Singapore's Temasek and China Development Bank.

But China Development Bank has already lost money on the 3% stake it took in Barclays last year. And Temasek is nursing a hefty loss on Merrill shares, which have fallen around 25% since it purchased them last December.

It's clear why banks are courting sovereign investors - existing shareholders have got cold feet when it comes to rights issues, and bringing in an investor from Asia can be dressed up as a strategically advantageous move.

But why would a sovereign fund want to pour its money down the drain? Some say sovereign funds lack the talent to identify better investment opportunities. Is this the case, or do they know something we don't?

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