The assets of the top 50 international and global money managers grew 27.4% in the year ended March 31, to $357.3 billion, according to Pensions & Investments' annual survey.
A year earlier, the top 50 managed a total of $280.48 billion and in 1994, the top 50 managed $240.139 billion.
The assets of the top 125 managers rose 26% to $400.084 billion in the year ended March 31, a significantly better gain in assets than last year's, in which the 125 largest firms posted a gain of 19.4% to $317.352 billion.
Market gains contributed to the gain in assets. In the year ended March 31, the Morgan Stanley Capital International Europe Australasia Far East Index posted a 12.67% gain. But several other factors contributed to the gains in international and global portfolios:
The surge in the U.S. stock market in 1995, which encouraged many plan sponsors to rebalance their portfolios, reallocating some of the return that exceeded their targets for domestic investments into foreign markets. While making that move, some sponsors even went further, lifting their foreign allocation by more than just the excess amount in their domestic portfolios. Some sponsors took these moves as a way to come closer to their target overseas allocations.
Increased international targets at some funds, including those that raised or launched emerging markets allocations. Data from InterSec Research Corp., Stamford, Conn. underscore the latter point. As of Dec. 31, tax-exempt investors had $38 billion in emerging markets - including allocations to designated emerging market accounts and emerging markets holdings in broader international portfolios. Thus, at year end, emerging markets represented 13% of total international equity investments, compared with 7.9% at the end of 1992, InterSec reported.
The rising interest in passive international investments. In 1995, indexed international equities mandates received 35% of total cash flow into international, compared with only 11% the previous year, said James Diack, InterSec director.
Boston's State Street Global Advisors and San Francisco's BZW Barclays Global Investors -two firms known for indexing - were beneficiaries of assets moving to passive investing. In the year ended March 31, State Street Global gained a whopping $16.132 billion, to a total of $38.697 under management for international/global investments. Of the new cash inflow, more than 80% was for passive investment, said Peter Stonberg, chief investment officer.
In addition, BZW Barclays gained $9.344 billion, to a total of $26.732 billion in assets under management for international/global investments. Of the new allocations, 90% went to pure indexing strategies, while the remainder was invested in actively managed quantitative strategies, also known as enhanced indexing, said Dave Nadig, managing director of marketing for BZW Barclays.
The firm's growth in international assets resulted from new and additional allocations to what had been Wells Fargo Nikko Investment Advisors. Wells Fargo was acquired late last year by Barclays PLC of London. Before the merger, Barclays did not have assets under management from U.S. tax-exempt clients, said Mr. Nadig.
Why did passive investing gain popularity last year? According to Reza Vishkai, director of international research at RogersCasey, Darien, Conn., one reason is that as funds increase their international allocations, "passive investing is one of the easiest and most cost effective ways to accomplish this move. In addition, many funds use the EAFE index as a proxy for their international equities exposure in asset allocation and asset liability studies."
As a result, plan sponsors need international investing strategies whose performance roughly conforms to EAFE's. But according to Mr. Vishkai, that's not what they may be getting; in reality, many active international managers have deviated sharply from EAFE in their investment allocations. Partly for this reason, some plan sponsors are indexing more of their international assets, he said.
Mr. Vishkai expects the appeal of passive international investing to continue growing. But for now, active international management remains dominant in size of assets under management. And as P&I's survey shows, some active international players posted sizable gains in the amount of money under management. For example, in the year ended March, Boston-based Grantham, Mayo, Van Otterloo & Co., posted a $4.798 billion rise in international assets under management, to a total of $13.374 billion; New York's Scudder, Stevens & Clark posted a $3.892 billion gain in international/global assets to a $12.75 billion total; and Los Angeles-based Capital Guardian Trust Co. saw its foreign-invested assets climb $3.781 billion to $23.279 billion.
Rankings of the 10 largest international/global managers changed little in the year ended March 31. Rowe Price-Fleming International, Baltimore, and Bankers Trust Co., New York, moved onto that list, ranking ninth and 10th respectively. They bumped New York-based Morgan Stanley & Co., which slid to 11th place from sixth last year; and Boston's Putnam Investments, which dropped to 16th place from eighth the year before.
Among other large managers, changes included: the ranking of London-based WorldInvest dropped to 40th from 22nd; Nomura Capital Management, New York, a unit of Nomura Investment Management Co. Ltd. of Tokyo, dropped to 25th from 18th, and New York's Fiduciary Trust Co. International fell to 23rd from 17th.
Susan Leader, WorldInvest's director of U.S. marketing, said much of the drop in international/global assets under management at her firm came from the loss of two large fixed-income accounts, which she would not identify. Those losses occurred after the firm's global/international fixed-income performance suffered in the first half of 1994, followed by the "departure of some personnel" in the second half of 1994. She noted "our fixed-income performance has turned around since that time."
According to the survey report, Putnam's decline in international/global assets appeared to be due to a drop in international/global fixed-income assets under management, and that international/global equity assets had risen. But the company did not respond to a telephone call for comment.
Some managers also gained assets. With its reported $2.4 billion increase in international/global assets under management to $4.903 billion, the Bank of Ireland Asset Management (U.S.) Ltd., Greenwich, Conn., rose to 22nd place from 34th last year.
Pacific Investment Management Co., Newport Beach, Calif., leapt to 19th place from 51st last year. But that jump largely reflected a tactical shift of domestic fixed-income portfolios that can be invested abroad at opportune times.
According to John B. Brynjolfsson, PIMCO vice president, managers of this money shifted a sizable amount to European bond markets in last year's second quarter, and as of March 31, more than $3 billion remained there.
Managers in this year's survey reported having a total of $234.051 billion under management from non-U.S. pension clients. The three largest sources of those assets were: the United Kingdom, supplying $120.166 billion of the total; the Netherlands, providing $35.634 billion; and Canada, $21.175 billion.
There were 141 respondents to this year's survey, compared with 126 last year.
