Why would a sovereign wealth fund that poured $5 billion into Merrill Lynch eight months ago want to invest even more money after seeing Merrill's shares fall by more than half?

Easy. It's practically a sure thing.
 
Temasek, Singapore's second-largest sovereign wealth fund, is the biggest shareholder in Merrill Lynch, the troubled investment bank that has written down $50 billion worth of losses since the credit crisis began. And it might not be done investing yet.

At a speech in Singapore today, Temasek's chairman indicated the fund would consider putting even more money in Merrill, according to Bloomberg. Last month, Temasek committed another $900 million to Merrill, which would put its ownership above the regulatory limit of 10 percent for foreign investors. It's currently pending approval.

The reason why investing in Wall Street's troubled banks is a sure thing is that many of these sovereign wealth funds, with such deep pockets, are able to garner such good terms in their deals that they are as close to risk-free as you can get in this otherwise lethal sector of the market.

The banks' desperation for more capital puts the foreign investors in the driver's seat. Lehman Brothers is just the latest to learn that, according to several reports, funds in Korea and China walked away from the firm because Lehman wouldn't agree to their terms.

If you need a sugar daddy that badly, chances are he'll come with his own demands.

Temasek and the other early investors in Merrill Lynch, like the pension fund of New Jersey, were made whole on their initial investment when Merrill sold more stock to the public in July. Singapore used its size to negotiate an anti-dilution clause that was triggered by the subsequent stock offering.

Merrill ended up paying Singapore $2.5 billion in July, virtually erasing its losses despite the stock price being cut in half.

The risk now is that Singapore and Merrill's other investors converted their preferred shares to Merrill common stock, and they're prohibited from selling it until January. That's okay if you're a large, diversified fund in this for the long haul like Temasek is. But it was enough to make Bill Clark, head of New Jersey's pension fund investments, refrain from investing more capital, he said in an interview last week.

Temasek says its assets grew by 13 percent in the 12 months that ended in March, to $131 billion. With girth like that, capital-hungry banks might be willing to agree to just about anything.