STAMFORD, Conn. -- U.S. tax-exempt institutions last year replicated their record-high foreign investing of 1996 by putting a net $51 billion into cross-border accounts, according to InterSec Research Corp.
That allotment brought total international/global investments by U.S. institutions to $556 billion as of year-end 1997.
However, institutions' total global/international allocation fell to 10.2% of total assets last year, vs. 10.6% the year before. InterSec linked that adjustment to the booming performance of U.S. equities, which lowered the proportions of lesser-performing asset classes in a total portfolio.
But the move didn't signify any drooping interest in international, InterSec maintains. On the contrary, Jim Waterman, InterSec senior vice president, views last year as "quite strong for new (cross-border) funding." While the sector's growth rate is slowing, as the asset class becomes more mature, allocations still will be rising. Indeed, InterSec forecasts that by the end of 2002, U.S. institutions will be holding just more than $1 trillion in cross-border investments, representing 14.4% of total assets.
Last year, the need to rebalance portfolios amid the U.S. market's boom benefited foreign investing. "As the U.S. market went from strength to strength, at least some plan sponsors took some money out" of the U.S. market "and increased international exposures" in order to maintain a certain percentage in international, explained Mr. Waterman.
On balance, more foreign investments went into newly funded accounts than existing accounts, although less so than the year before. According to InterSec's data, institutions put a net $31 billion into initial fundings (newly funded portfolios) vs. $20 billion in existing accounts. That compares with a net $34 billion of newly funded accounts in 1996, vs. $17 billion in existing accounts.
But in fact, data show only limited growth in initial fundings in the past four years. Compared with $31 billion in 1997 and $34 billion in 1996, the category attracted $26 billion in 1995 and $28 billion in 1994. As Mr. Waterman pointed out, "initial fundings have been at a fairly stable level over the last four years. That tells you" that sizable sums are going to "existing managers," which helps explain why there hasn't been an explosion in managerial searches over that time, he noted.
In their specific investments, institutions haven't veered from their preference for broad international portfolios and for global emerging markets. And last year was no exception. According to Mr. Waterman, those two categories accounted for 95% of the net $51 billion of cross-border investments.
In turn, global and regional equity accounts showed no net increase from the previous year, and the poorly performing international small-cap stock sector last year was "quite dull" in terms of investor interest, Mr. Waterman found.
In the fixed-income category, net investments in global bonds increased to more than $3 billion last year from an increase of about $1 billion in 1996, but net allocations to international (non-U.S.) bonds were virtually zero.
InterSec estimates $19 billion was invested in the multiasset class at the end of 1997. And, while it projects funding for this category will reach $48 billion by the end of 2002, allocations are "difficult to measure," Mr. Waterman said, because "it becomes subjective" as to whether a portfolio fits this category.
For its 1997 survey, InterSec captured data from more than 200 international and global managers. And although it did not cover early develoments in 1998, Mr. Waterman hasn't "seen anything dramatically different" going on this year, he said.