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November 24, 1997 12:00 AM

TURMOIL NOT SLOWING SOME MOVES ABROAD

Margaret Price
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    Some major U.S. institutional investors are forging ahead with their foreign investing plans, despite the recent world market turmoil.

    Their moves defy tradition; funds in the past often backed away from foreign investing when markets appeared treacherous.

    Some consultants, however, still expect a slowing in international hiring in reaction to the turmoil.

    The $8.5 billion New Mexico State Investment Council, the $12 billion Mississippi Public Employees' Retirement System and the $20 billion Pennsylvania State Employes' Retirement System are among those continuing with new or additional foreign investing programs or planning to explore more foreign investing next year.

    And, the New Jersey Division of Investment, Trenton, which handles $58.6 billion of public pension assets, might decide to "emphasize international stocks a bit more at our January investment strategy meeting," said Director Roland M. Machold.

    The New Mexico Council, Santa Fe, an endowment, has selected its first non-U.S. equities manager -- Bankers Trust Co. -- and more hires are expected down the road. (Funding of BT has been delayed, however, pending some operating budget problems, said Phil Archibeck, state investment officer.)

    The Jackson-based Mississippi employees' fund is continuing its search for emerging markets managers for about $150 million. Lorrie Tingle, deputy director-investments, stressed the fund's long-term perspective and that the fund "certainly isn't a market timer."

    But she also pointed to opportunities now surfacing in the marketplace. "Although we've been keeping an eye on what's been going on in the markets in the last few weeks, we see it as a fairly good time to move ahead," said Ms. Tingle.

    "You prefer to get in when (prices) are lower rather than higher."

    The Harrisburg-based Pennsylvania fund would like to explore a modest increase in its emerging markets allocation. In December, the fund's staff will include that among its proposals to the board, said Peter Gilbert, chief investment officer.

    He noted the "turmoil in the markets doesn't make (emerging markets) less interesting."

    Attitudes have changed

    Such views differ from those just a few years ago.

    "(After) Japan's market crashed, (quite a few) plan sponsors in the early 1990s took a wait-and-see attitude on international investing for a year or two," said Glenn Davis, principal with Eager & Associates, Louisville, Ky.

    He recalls Eager's data showing a drop in hirings of international managers in the early 1990s.

    But funds have become more sophisticated and, in some cases, more willing to "take advantage of buying opportunities," he said.

    At least a few other consultants observe similar patterns.

    "We're seeing clients rebalance . . . more actively now following the market turmoil," said Jonathan Moll, investment consultant at Hewitt Associates, Lincolnshire, Ill.

    "It's a rebalancing to strategic asset allocation targets vs. tactical moves. Nonetheless, they are taking the opportunity to buy into markets at lower valuations."

    Evaluation Associates, Norwalk, Conn., has obtained four new international manager search requests in the last few weeks -- two for broad international equities portfolios and two for emerging markets. Of the four unnamed clients, one is a first-time international investor, said Timothy O'Grady, senior vice president.

    Ennis, Knupp & Associates, Chicago, has seen mixed reactions toward international investing amid the markets' upheavals. Two endowments -- with substantial foreign allocations already -- decided to postpone further overseas commitments for the time being, said Sue Rutherford, senior associate. However, two other clients -- a corporate fund and an endowment -- chose to push forward and increase their foreign equities.

    "They felt it was a great opportunity," she said. "When everyone else felt nervous" about the markets, they thought "it might be the right time to do something."

    A number of clients of Asset Strategy Consulting, Los Angeles, "have just hired, or are about to hire, (broad international) or emerging markets managers," said Managing Director Lawrence Davanzo.

    Such moves aren't in reaction to the markets, he said.

    The overall trend in foreign investing has been more or less steady, some data show.

    The Tracker service of Eager & Associates measures hirings of international money managers. According to Tracker, international manager hirings represented about 19.1% of total manager hirings for the first nine months of 1997 (the most recent available data). That compares with 21% for the same period in 1996 and 20.8% for 1995's first nine months, Eager's data show.

    And foreign equities remained the preferred sector, accounting for 97.4% of all international hirings.

    In comparison, global/international bond hirings made up only 2.6% of all international hires for this year's first nine months. That figure was even smaller than both the 5.9% share global/international bonds claimed in last year's first nine months and the 3.6% share it got in the comparable 1995 period.

    In addition, the Tracker service counted only 10 hirings of currency overlay managers between Jan. 1, 1995, and Sept. 30, 1997.

    Many -- although not all -- consultants see hirings of global bond managers remaining limited. They note quite a few funds already allow domestic bond managers to invest abroad, usually up to about 20% of portfolios. Thus, many expect equities to remain the preferred foreign asset class.

    Consultants' opinions differ

    But consultants don't agree about the overall attitude toward foreign investing now.

    William M. Mercer Investment Consulting Inc., Chicago, has conducted 15 international manager searches this year, of which 14 were in equities. But Richard Dabrowski, research director, expects slower growth following the fourth quarter's market swings.

    He noted some clients are concerned that "volatility of the U.S. and foreign markets seems to occur at the same time." That, in turn, has prompted some to question whether foreign markets still provide ample diversification, he said. Mr. Dabrowski said Mercer will be exploring that issue further "to see how plan sponsors can take that into account when making allocations."

    Capital Resources, Chicago, has seen a slowdown in international search activity this year, said Managing Director Ara Jelalian. A major distraction, he said, has been the strong U.S. market.

    While Mr. Jelalian believes this has created pent-up demand for postponed foreign investing, that demand might not be filled until foreign markets heat up.

    "It's hard for a lot of plans to advocate higher international equities allocations, even if they are below their international target. So a lot of plans are doing nothing about international" and won't "as long as the U.S. market outperforms," he said.

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