At least a dozen international managers have been tapped as mutual fund subadvisers in recent months.
Subadvisory work gives some managers their first crack at the U.S. mutual fund business. And for mutual fund sponsors without an international presence, hooking up with an established international manager provides instant credibility in the marketplace.
In other instances, the firms acting as subadvisers - such as Scudder, Stevens & Clark Inc., J.P. Morgan & Co. Inc., G.T. Management and Templeton International - already sponsor their own family of funds and view the subadvisory work as just another way to accumulate assets.
"The real opportunities for the subadvisory business going forward will be on the international front. As the retail investor has become more aware of the opportunities in international, providers will be filling gaps in their product line," said Eve Guernsey, managing director of J.P. Morgan, New York.
Although most of the newer relationships do not involve money management joint ventures, a few do, including Babson-Stewart Ivory International and Guardian Baillie Gifford.
Distribution - the most expensive and labor-intensive aspect of the mutual fund business - is generally left to the mutual fund sponsor. But the way a fund's management fee is divided might depend on how much the subadviser brings to the table, i.e. marketing support.
The typical percentage to the subadviser is 75% to 90% of the fee, but the figure can go as high as 100%.
"If you need a balanced offering to garner assets, you'll give it all away," said Kenneth Stoll, partner in the investment company practice of McGladrey & Pullen, New York, an accounting firm.
"What's happening is a year or so ago, international investing became very in vogue, with performance very high. There's definitely an acceleration in people trying to round out their mutual fund offerings," said Mr. Stoll.
The vast majority of subadviser hirings in 1994 were for international stocks and emerging markets, as opposed to regional funds and international/global fixed income, according to Morningstar, a Chicago-based mutual fund research firm.
Among the newer appointments:
The Royal Trust Co. of Canada, Toronto, in August named Brown Brothers Harriman & Co. Inc., New York, to run three new international stock funds: a non-North American fund; an emerging markets fund; and, for bank trust clients, a fund combining the two.
"Obviously one of the attractions is growth of assets under management and having someone else provide a distribution system. This is far and away one of the best companies in Canada," said Henry Frantzen, international equity chief investment officer of Brown Brothers.
Also in August, Equitable Securities Corp., Nashville, selected for its new manager-of-managers family of mutual funds Murray Johnstone International, Glasgow, Scotland, for mid- to large-capitalization foreign stocks as well as international fixed income, and Blairlogie Capital Management Ltd., Edinburgh, for emerging markets stocks.
Partly as a result of the merger between Thompson Advisory Group, Stamford, Conn., and Blairlogie's parent, Pacific Mutual Life Insurance Co., Newport Beach, Calif., Blairlogie also was named subadviser of a $300 million international stock mutual fund pending shareholder approval. The fund formerly was managed by Edinburgh-based Martin Currie Inc.
Dreyfus Corp., New York, selected M&G Investment Management Ltd., London, as subadviser to its International Recovery fund. Dreyfus had virtually no reputation in international investing, Mr. Stoll said. By teaming up with M&G, Dreyfus was able to "get credibility instantly," Mr. Stoll said.
Scudder was named in August as subadviser for a global stock portfolio sponsored by Cambridge Series Trust, Richmond, Va. Scudder also runs the Rodney Square International Equity Fund for Rodney Square Management Corp., Wilmington, Del.
Marvin & Palmer Associates, Wilmington, Del., was selected to manage the newly launched First American International funds in April 1994. The fund sponsor is SEI Financial Management Corp., Atlanta.
Fremont Investment Advisors Inc., San Francisco, the investment management subsidiary of Bechtel Power Corp., hired Sit/Kim International Investment Associates Inc., San Francisco, to run an international growth fund, and Acadian Asset Management, Boston, for an international small-cap fund last spring.
Ivory & Sime International, Edinburgh, which runs international funds for the Parkstone family of funds, recently signed on as a subadviser for the Saratoga Funds, which are sponsored by Oppenheimer Capital, New York.
Last month, Frank Russell Trust Co., Tacoma, Wash., hired J.P. Morgan to run $130 million in a manager-of-managers commingled fund for institutions as well as a mutual fund for institutions. Both are international equity funds.
Morgan Stanley Asset Management, New York, was selected in August to run the Fountain Square International Equity fund offered by Fifth Third Bank, Cincinnati.
Smith Barney/Travelers Series Fund selected G.T. Management to run a Global Strategic Income portfolio in June.
The Voyageur Group, Minneapolis, hired Murray Johnstone four months ago to run the Voyageur International Equity fund. Murray Johnstone also runs the $165 million Calvert World Values Fund, a global socially responsible equity fund for Calvert Asset Management, Bethesda, Md.
American Aadvantage Funds, Fort Worth, Texas, the family of mutual funds managed by the in-house investment management subsidiary of AMR Corp., named three subadvisers in August for its new manager-of-managers international equity fund: Morgan Stanley Asset Management; Hotchkis and Wiley, Los Angeles; and Templeton International, Fort Lauderdale, Fla.
Van Eck Associates, New York, which launched several international funds in August, conducted a worldwide search using Evaluation Associates Inc., a pension fund consultant. AIG Global Investors Inc., New York, was named to run an Asian stock fund; and Pictet International Management Ltd., London, was named to run a global small-cap fund. Fiduciary International Inc., a subsidiary of Fiduciary Trust Co. International, London, was named in January to run a global balanced fund for Van Eck.
"With this degree of specialization, it's hard to find one firm. We selected the premier investment managers in each of these sectors," said Robin Ernie, director of product management of the firm, which runs $2 billion.
As the list of recent hires suggests, the types of firms seeking the expertise of international managers is varied.
"There are far more subadvisers with international equities than other areas. Banks in particular have been hiring (outside firms) almost exclusively to set up international funds," said John Rekenthaler, mutual fund editor of Morningstar.
From the money managers' point of view, "This subadvisory business is a more cost-effective way to get into the business ... as long as you know what you're in for in terms of marketing," said Sue Mullin, director of marketing at Murray Johnstone, which runs more than $1 billion in assets in mutual funds and separate accounts.
For some firms, there's the rub.
"We have one or two very small relationships for mutual funds. It's quite distinctly different from the way we would report and be accountable to institutional ERISA clients. It's a market we have not actively gone after," said Fraser Blakely, director of North American marketing for Barings, Boston, which runs $10.5 billion for North American clients.
"This is obviously an important sector of the market. Clearly our preferred route is to find a house with good distribution in place. We don't want to be an integral part of the marketing effort" in the United States, Mr. Blakely said. Barings runs a multimanager fund of funds for institutions in Canada and the United States for Frank Russell Trust.
Some firms view the marketing demands favorably. A case in point is J.P. Morgan. The New York firm already acts as a subadviser for 13 funds and variable annuity products totaling $1.3 billion.
"We're making a renewed commitment to the subadvisory business," said Ms. Guernsey of J.P. Morgan.
Whereas in the past J.P. Morgan treated subadvisory relationships as just another separate account, now the firm wants to actively grow the business and help position its funds in the marketplace.
Ms. Guernsey views the business "as a way we can distribute our investment products to distribution channels we don't normally have access to."