NEW YORK - Alliance Capital Management L.P., a firm with more than $50 billion in mutual fund assets, is a surprisingly small player in international.
It has $1.1 billion in open-end international stock funds, mostly in specialized region or sector funds.
That's quite different from Alliance's institutional asset management business, in which $8.3 billion of the $90 billion in assets is in diversified core international equity accounts for such large pension fund clients as Ford Motor Co.. New York City Retirement Systems, Rhode Island Retirement Systems and the New York State and Local Retirement Systems.
In an effort to attract 401(k) clients as well as retail investors, firm officials are hoping to bolster Alliance's international mutual fund capabilities through Alliance's pending acquisition of Cursitor-Eaton Asset Management, London, a global asset allocation specialist. Alliance might introduce a global asset allocation mutual fund for retail investors, although it has not yet started the process.
Alliance executives also hope the acquisition will enable the firm to intensify its marketing to pension funds in Europe. Cursitor runs $10 billion in assets, mainly for European pension funds.
Alliance has come a long way since it introduced its first load mutual fund to the public in 1983 and its first closed-end fund in 1987. Assets under management have soared since 1987, largely through strategic acquisitions.
Meanwhile, its mutual fund business has grown robustly to represent a bigger piece of the pie. In 1987, mutual funds represented $7 billion - or less than 25% - of the firm's $30 billion in assets. In 1992, they had grown to $22 billion, just more than one-third of the firm's $64 billion. In 1993, with the addition of $36 billion in assets from its purchase of Equitable Capital Management Corp., the ratio remained around one-third, at $37 billion of Alliance's $115 billion.
When the Cursitor acquisition is finalized, assets will total well over $150 billion, including more than $50 billion in mutual funds.
"Cursitor-Eaton provides a service (to Alliance) that doesn't currently exist,"said Michael J. Laughlin, executive vice president of Alliance Capital Management and chairman of Alliance Fund Distributors, referring to the global asset allocation product.
The goal of the purchase is to add to earnings, bring new investment skills and enter new markets, he said. "We're already a dominant player in the ERISA market. This gives us a different scope," he said.
He said it will take the firm "a little while to determine how to take advantage (of the acquisition) in our U.S. retail business."
As for overseas, "Cursitor has a couple of offshore funds we'll be looking to add to our arsenal."
International products are in great demand from the broker-dealers that are Alliance's main mutual fund distribution channel.
"Most of our distribution firms are looking for international because they think international will turn around, although Alliance is still bullish on the U.S. for 1996. Most of our new products will come out of the international area in the next several years," Mr. Laughlin said.
The firm has added 19 international research analysts and portfolio managers during the past 18 months. Alliance also has named its first marketing director in London, John Campbell. Mr. Campbell is a director at Cursitor-Eaton. He will assume the new position once the acquisition is completed in late February.
Alliance offers only a few international funds. Its largest is a $700 million Worldwide Privatization fund, which was up only 4.91% in 1995 for the A shares, trailing most of its peers. Its core offering, the $240 million Alliance International fund, is close to reaching a three-year track record under its new portfolio manager, A. Rama Krishna. Alliance International's A shares gained 10.10% in 1995.
"The diversified international fund (Alliance International) came out in 1981 but its long-term performance is pretty lackluster. It's been a little better in the past few years but it's not the kind of fund that really stands out," said Amy Arnott, editor of Morningstar Mutual funds, a research publication.
The fund has garnered a two star or "below average" risk-adjusted Morningstar rating because star ratings are measured against domestic stock funds, which had stellar returns last year.
Ms. Arnott said it is surprising Alliance doesn't have a larger presence in international mutual funds.
If Alliance hopes to significantly grow its international assets from 401(k) and retail clients, its core international stock fund is the best candidate because of its diversified nature. The fund uses country and sector weightings similar to that of the Morgan Stanley Capital International Europe Australasia Far East Index, with bottom-up stock picking.
The core fund has undergone significant changes in recent years."(A.) Rama Krishna restructured it; it used to be aggressive when it was managed out of our London office. The volatility was not acceptable," said Mr. Laughlin.
The fund is now managed out of Tokyo by Mr. Krishna, director of Asian equity research.
Alliance's regional funds - the $10 million All Asia fund and $120 million New Europe fund - have performed quite well but are still very new, Ms. Arnott said.
Although Mr. Laughlin said it could be argued that Worldwide Privatization is a good core international fund because it holds 200 global blue-chip stocks, it is viewed mainly as a specialty fund because it invests in privatizations.
Alliance has about $16 billion in open-end load funds. Of that, $7 billion is in equities; $6 billion is in taxable bonds and $2.5 billion is in municipal bonds. It also runs $14 billion in money market funds.