GLOBAL institutional investors and sovereign wealth funds can play an important and useful role in the design of the future world financial system, given their involvement in the current crisis.

They can provide 'constructive inputs', and reflecting their views in the process of revamping the regulatory regime will 'greatly help' markets to function effectively.

This will enhance global coordination and minimise the risks of over-regulation and protectionism, said Government of Singapore Investment Corporation's (GIC) deputy chairman and executive director Tony Tan here on Friday.

Dr Tan was speaking at the World Economic Forum in Davos at a session entitled 'Scenarios for the Future of the Global Financial System.'

He told the Forum: 'Global institutional investors, with their potentially important role both in financial stabilisation as well as capital providers in the post crisis financial system, can contribute constructive inputs to the design of the new regulatory regime.'

The current financial tsunami has seen sovereign funds, including GIC, gain prominence with the ploughing of billions of dollars into distressed banks such as UBS and Citigroup.

Dr Tan noted that they and other real money investors, will grow in significance in the global financial community relative to leveraged investors such as hedge funds, becoming a more important source of long-term capital.

He also said the coming redesign of the post-crisis world financial system will be a 'major and difficult' exercise.

Dr Tan identified three key risks in this process - insufficient or ineffective international coordination, the threat of protectionism and over-regulation - which stifle efficiency and innovation.

He added: 'To be truly effective, the reform of the current regulatory system will need to be international in nature.'