The crisis at 1Malaysia Development Berhad may weigh on sovereign investors. The fund has spawned one of the industry’s worst scandals. Allegations of graft involving Prime Minister Najib Razak – which he strenuously denies – have led to a political crisis, a plunging currency, and investigations from Switzerland to Hong Kong. Emirati backer International Petroleum Investment Company could now be on the hook for $7 billion. Though neither is a typical sovereign wealth fund, more traditional peers could suffer in the fallout.

IPIC, chaired by Abu Dhabi royal and Manchester City owner Sheikh Mansour bin Zayed Al Nahyan, aided 1MDB’s debt-fuelled expansion. Now that 1MDB is in trouble, IPIC has agreed to assume responsibility for debt – including bonds, interest payments, and other bits and pieces – equivalent to about 60 percent of the value of 1MDB’s total assets at the end of March 2014. In return, IPIC will receive unspecified assets – most likely real estate.

The diagnosis is not difficult. State ownership combined with powerful patrons enabled all-too-easy access to capital. Both funds have made questionable investment decisions. Similar problems led to the 2009 Dubai debt crisis, which eventually required a $20 billion bailout from Abu Dhabi.

The core problem is that 1MDB and IPIC are more opaque, and have higher risk appetite, than many other sovereign wealth funds. Yet their travails play to the concerns that many governments and financial institutions already have about dealing with sovereign capital more widely.

Leading sovereign funds could also suffer by association with the smaller local mavericks. 1MDB and IPIC operate in the shadows of larger, more established entities: the Abu Dhabi Investment Authority and Malaysia’s Khazanah Nasional Berhad combined manage over $660 billion, according to the Sovereign Wealth Center.

The controversy is bound to make at least some more cautious in dealing with the sector as a whole. That might mean some deals are never offered to funds, or are subject to heightened political scrutiny. To address that, governments will need to reassure themselves that decision-making processes and transparency at their investment vehicles are up to scratch.