Growth in overseas assets of U.S. tax-exempt institutional investors slowed in the year leading up to March 31.
Last year's third-quarter decline in markets across the globe ate into international accounts' market appreciation, and the drop scared off -- for the short term, at least -- institutional investors from putting money overseas, money managers said.
Assets managed by the 50 money managers running the most international and global accounts for U.S. institutional and tax-exempt clients grew 9.7% to $658 billion in the one-year period ended March 31, according to Pensions & Investments' annual survey of money managers running international and global assets for U.S. institutional tax-exempt clients.
Increase lags last year's
This year's rise in international and global accounts fell far from matching the almost 32% one-year rise in international and global accounts that firms reported at the end of the first quarter in 1998.
The Morgan Stanley Capital International Europe Australasia Far East index was up 6% in the 12-month survey period. The MSCI World index was up 13% in same period.
When the EAFE index dropped close to 14 percentage points by the third quarter, "search activity dried up," said John Brown, chief of institutional management with Putnam Investments in Boston. The firm held its 10th place spot and saw a 3.9% rise in active international accounts.
U.S. pension funds have not radically shifted their overseas investment strategies. For the third consecutive year, U.S. pension funds invested 10% of their total assets -- about $638 billion -- internationally in 1998, according to a recent survey of money managers by InterSec Research Corp. in Stamford, Conn. (P&I, May 17).
Market appreciation contributed $66 billion in growth to tax-exempt investors' international portfolios, according to InterSec's survey of 200 money managers. Net cash flow from sponsors last year was $23 billion, less than any year since 1982.
The total in international and global accounts was $775.5 billion as of March vs. $700.4 billion a year earlier, a rise of 10.7%, according to the 187 firms surveyed.
Some see strong growth
Despite the market turmoil and lag with EAFE, a few leading firms enjoyed strong growth.
The top 10 list is similar -- but not identical -- to last year.
Capital Guardian Trust Co., Los Angeles, which moved to second overall from third, won close to 40 new accounts, the majority of which were active accounts measured against EAFE, and also saw clients add to existing international funds, said Robert Ronus, president and portfolio manager. The firm saw its international and global accounts rise 19.9% to $52.5 billion at the end of March from $43.8 billion a year earlier.
Bankers Trust, which became Deutsche Bank early last month, saw its international and global assets increase to $27.3 billion from $18.9 billion a year earlier, an increase of 44.4%. Bankers Trust, moving to sixth from eighth place, won 40 new active, institutional accounts worth $2 billion between January 1998 and March 1999, said Rick Vella, managing director, head of global index funds for Deutsche Bank in New York. It also won $500 million in enhanced international index accounts, he said. Passive international business accounted for much of the remainder of the growth, he said.
Morgan Stanley Dean Witter & Co., New York, rose a notch to third place with $51.7 billion in international and global accounts, a 38.6% rise over the $37.3 billion at the end of the first quarter last year.
Bank of Ireland Asset Management (U.S.) Ltd., Greenwich, Conn., jumped to No. 11 from No. 14 a year ago. It saw assets rise 30.2% to $16.8 billion at the end of the first quarter.
Although some of the leading managers showed growth, it was less than robust.
State Street finishes first
State Street Global Advisors, which again finished first, saw international and global assets grow 9.2% to $68.9 billion from $63.1 billion a year earlier. Seventy-five percent to 80% of that growth came from market appreciation, said Nicholas Lopardo, chairman and chief executive officer for the Boston-based firm.
J.P. Morgan Investment Management Inc., New York, moved up one place to eighth with $20.2 billion in international and global accounts, a 6.9% rise over last year. And Schroder Investment Management slipped one space to No. 7 with $24.4 billion, for growth of 1.2%.
Some of the leading firms saw international and global accounts shrink.
Barclays Global Investors, San Francisco, dropped to fourth place this year with $44.1 billion under management from second a year earlier with $46.4 billion, a drop of 5%. The firm lost a $4.5 billion international account from a large public U.S. pension plan, said Tom Taggert, a spokesman. But the client chose not to drop BGI and shifted the assets into a domestic strategy, he said.
UBS Brinson holds at fifth
UBS Brinson held at fifth place and saw international and global accounts drop 11.8% to $29.2 billion from $33.1 billion a year earlier. There were three reasons for the drop, said Carl Gargula, a spokesman with the firm. This year, UBS Brinson did not include assets under management by Phillips & Drew, which ranked 86th with a little more than $1.2 billion under management. The firm also saw changes in mandates and reallocations of assets. He could not specify to what kind of accounts.
Scudder Kemper Investments fell to 12th with a little more than $16 billion in international and global accounts from seventh in 1998 with $19 billion, a drop of 15.5%. Scudder Kemper's figure last year, however, reported assets of both U.S. and non-U.S. institutional tax-exempt investors, thus accounting for much of the drop, said Ed Canaday, spokesman.
Others reported better numbers due to changes in accounting practices.
Prudential Insurance Co. of America, which moved up two spots to ninth, reported its defined contribution assets this year as part of its $19.6 billion total, said Timothy Biggs, spokesman for the Newark, N.J. company. It also invested more of its general account money overseas, he added.