WINDSOR, England -- U.S. pension flows to international securities are expected to slow to a trickle. Or are they?
According to a new survey by Record Treasury Management Ltd., only 18% of pension funds surveyed plan to boost international allocations during the next year, compared with more than half of the funds surveyed last year. Eleven percent said they plan to reduce their international exposure.
This result flies in the face of other evidence. For example, a Greenwich Associates report said 10.7% of U.S. pension assets were invested abroad in 1997, and that proportion is expected to top 12% by 2000.
Record officials were nonplused. "Over the next couple of years, I think international allocations will continue to grow but not at the same pace as previously," said Lucy Cassidy, associate director at Record.
Among the other surprising results in the Record survey:
* Passive international mandates have declined dramatically. This year, 63% of respondents said they dole out solely active international equity mandates, up from only 43% last year. Meanwhile, only 26% said they have both active and passive mandates, down sharply from 46% last year. Eleven percent use a purely passive approach, the same as last year.
But there is little corroboration elsewhere of shrinking allocations to passive international equity mandates. According to Pensions & Investments' survey of money managers, passive foreign stock mandates tallied $121 billion as of Jan. 1, up 29% from the year before.
* Less than half of respondents said they would consider implementing a currency overlay program, down from two-thirds last year and 81% in 1996. Record officials found this surprising, given larger international exposures and the strength of the dollar.
* Sixty-two percent of respondents believe that currency risk is unimportant in the long run -- not an unreasonable result given academic evidence. What is surprising is that represents a twenty-five percentage point jump from 37% in 1997.
What is the reason for these startling results? The answer likely lies in the small sample size and the changing composition of the universe.
Only 30 pension funds responded to a questionnaire sent by Record officials to 750 pension funds of varying size. Last year, Record received 31 responses but from a more highly concentrated universe of the top 250 U.S. pension funds.
Of the 30 responses received this year, about half had replied the year before. Thus, the small sample and inclusion of much smaller pension funds affected the results, Ms. Cassidy acknowledged.