In the film Jurassic Pak, the visiting scientists puzzle over how the dinosaurs in captivity (now loose, roaming the island, and trying to eat the scientists) are able to reproduce since by design all the creatures on the island are female. Dr. Ian Malcolm, an expert in chaos theory, famously remarks: “life finds a way.”

The same thing is now happening in the global market for mergers and acquisitions (M&A). In spite of the worldwide credit crunch that has seized up financial markets, M&A deals are finding a way to get done.

In this case, the creatures on the prowl, and taking a lead role in funding corporate buyouts, are none other than Sovereign Wealth Funds in partnership with emerging market banks.

Previously, I have written about how Sovereign Wealth Funds (SWFs) are now big buyers of distressed equities. Wall Street banks have been a particular target of interest for SWF money. From the Middle East to China and Singapore, government-backed SWFs are spending big bucks investing in Citigroup, Merrill Lynch and Bear Stearns among other investments.

Global M&A activity came to a screeching halt last year as the sub-prime induced credit crunch worsened. Many buyout deals couldn’t get done, because big Wall Street banks couldn’t sell these leveraged loans to investors. Instead, big banks internationally got stuck with about US$150 billion of leveraged buyout debt on their books.

But life in the M&A market finds a way…

SWFs are filling the void left by big Wall Street banks. By working in partnership with private equity firms and foreign banks, SWFs are providing the financing needed to get buyout deals done. Banks in emerging markets have really stepped up to the plate to provide funding after Wall Street struck out.

Turkish banks for instance provided nearly US$2 billion in senior debt for the US$3.3 billion takeover of local retailer Migros. In Asia, Shinhan Bank financed a US$3.2 billion acquisition of a Korean firm. According to a recent Financial Times article, “local banks, particularly in Korea, Taiwan, Malaysia and China, are differentiating themselves” from Wall Street banks, by offering cheaper financing terms and being more willing to lend to get M&A deals done.

This is an interesting reversal of fortune for Wall Street, once dominant in M&A financing, but not anymore. At the end of 2006, the world’s top 10 investment banks accounted for more that 80% of all the acquisition financing in emerging markets, according to the Financial Times.

However, by the end of last year, Wall Street’s share of emerging market deals sunk to just over 40%. Banks or private equity firms are now providing the bulk of the financing closer to where the deals are getting done.

A couple of potential investment trends of interest come to mind here…

First, Wall Street banks’ income statements have already suffered dearly from the sub-prime fiasco. They are now losing valuable offshore M&A business too. Meanwhile, the world’s SWFs and emerging market banks are snatching this lucrative business for themselves and fattening their own profits.

So if you’re banking on a rebound in the financial sector: Wall Street banks may NOT be the best choice even though they have been beaten down the most. Wall Street has lost not only prestige, but also market share in global financial services to SWFs and emerging market banks.

That business won’t be so easy to get back. Meanwhile, private equity firms such as beaten-down Blackstone Group (BX) have stepped up and they’re providing funding amid this credit crunch. These firms are perhaps better positioned to prosper long-term as global financial markets rebound.

In Blackstone’s case, the firm has another big ace up its sleeve. That’s China’s SWF — it’s a big strategic investor in this particular private equity firm. It has great credentials to carry when trying to win future M&A business in emerging markets – especially China!

MIKE BURNICK, Senior Editor & Global Markets Analyst

EDITOR’S NOTE: “As life finds a way” out of this credit crunch, Mike will be right there to recommend the most strategic, long-term safe ETFs that look to profit in his service, Global Market Investor. Read all of Mike’s latest and best long-term plays in his special report.