During the past year, sovereign-wealth funds earned a reputation as the well-funded investors of last resort, but the funds have become decidedly more cautious as the substantial investments they made stumbled. Managing nearly $3 trillion in assets, SWFs took global financial markets by storm last year, replacing private equity and hedge funds as the driver of corporate takeovers. The funds poured money into Western financial institutions, but their billions were not enough to quell the brewing financial crises.

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