Sovereign wealth funds have been prolific buyers of U.S. commercial properties over the past two years. But their high-profile purchases have put them under the microscope of the federal government.

The purchase of New York's General Motors Building, and more than $48 billion in investments in top U.S.-based investment banks in 2007, led U.S. regulators and Congress to ask for closer scrutiny of the funds. Regulators are concerned that with so much capital associated with less-than-transparent foreign governments supporting some of the largest American financial institutions, political motives might outstrip profit motives.

Last October, U.S. Treasury Secretary Henry Paulson warned in a meeting at the International Monetary Fund (IMF), “The United States believes a multilateral approach to SWFs (sovereign wealth funds) that maintain open investment policies is in the best interest of countries that have these funds, and countries in which they invest.”

In September 2008, the IMF negotiated with 26 of the world's top sovereign wealth funds, which control some $3 trillion in capital, to adopt new governing principles. The expectation is the funds will be required to demonstrate profit motives over other interests.

The influence of the funds is expected to grow. A new report from CB Richard Ellis predicts that sovereign funds will invest up to $725 billion in property around the globe by 2015.

The sovereign funds have provided invaluable help to many U.S. firms. “If it wasn't for these funds investing in our companies, we would be in a world of trouble,” says Clay Adams, chief investment officer for Jamestown, which invests in U.S. real estate on behalf of Germany's open-ended pension funds. “The same thing is true with real estate. If the Arab countries and the Germans and the Chinese weren't buying U.S. real estate, there would be a prodigious drop in pricing in places like New York and San Francisco.”

Jim Fetgatter, CEO of the Association of Foreign Investors in Real Estate, says sovereign funds are part of the cycle of investment. “They're a factor. But from my perspective looking over 20 years, they're not going to suddenly become a dominant force,” he says. “All these foreign investors come in waves. There have been Japanese waves, Dutch waves, German waves and Australian waves. It goes in cycles.”