U.S. pension funds that internally manage active international equities stayed away from last month's initial public offering of Freeserve PLC, the British Internet company.
But not all did so by choice.
The State of Wisconsin Investment Board, Madison, didn't participate because "not enough shares" were available, said Vicki Hearing, spokeswoman for the fund that has close to $49 billion in pension assets. There were "not a lot (of shares) out there," she said.
Freeserve, London, is the first IPO of a major European Internet company.
The company is a cross between a Web portal, like Yahoo! Inc., and an Internet service provider, like America Online Inc. It offers free Internet access to subscribers, then profits from a percentage of line charges.
It went public July 26, rising 37% on the same day in U.K. trading; by Aug. 5, it closed at 201 pence on the London Stock Exchange, down from its high of 244.5.
On the Nasdaq, the company issued an American depository receipt at $23.67 per share; last Thursday it was trading at $33 per share, down from its recent high of a little more than $40.
Other pension funds that actively manage international equities in-house clearly were not interested. The New Jersey Division of Investment, Trenton; Michigan Department of Treasury, Lansing; and Teacher Retirement System of Texas, Austin, all stayed away.
Texas Teachers "does not buy Internet IPOs," said Howard Goldman, spokesman for the $78.5 billion fund.
But some active international money managers were not so reluctant to buy Freeserve. In fact, they saw it as a sign of the Internet's potential outside of the United States.
"You know the Internet's going to expand. But you don't know how it's going to expand in the rest of the world," said William Andersen, senior vice president and portfolio manager with Driehaus Capital Management Inc. in Chicago. Driehaus bought Freeserve for its $1.7 billion international equity portfolio, most of which is pension fund money.
And managers also said they bought a smaller stake in Freeserve than is usual for their portfolios. Mr. Andersen declined to say how many shares Driehaus bought, but said the stock is less than 1% of the portfolio, vs. about 2% for most stocks.
And Driehaus is looking at Internet growth to accelerate overseas. In Japan and Europe, Internet penetration is 10% and 12% of the market. In the United States, it's 36%, he said.
Montgomery Asset Management bought Freeserve, but also bought less than its normal position, said Oscar Castro, a senior portfolio manager and principal in San Francisco. He declined to give Freeserve's position in Montgomery's $1.8 billion international equity portfolio.
Mr. Castro said Freeserve's initial price surge was strong, but nothing compared to an Internet IPO in the United States. "It was good, but not the 100% to 200% upside of recent '.com' issues."
Some pension fund officers and international managers said they are able to profit indirectly from the Internet through investing in a host of companies that provide telecommunication service, information technology or venture capital.
Japan's Softbank Corp. is just one of those opportunities. It's an venture capital/Internet holding company that has stakes in Yahoo!, Yahoo Japan, and E*TRADE. The company has seen its stock price soar 356% this year.
Part of that profit might be in bringing companies to the IPO stage, said Lisa Svensson, senior vice president and a portfolio manager of Boston-based Putnam Investments' more than $6 billion global growth fund. She expects to see more in the future.
The Wisconsin Investment Board owns 100,000 shares of Softbank, and Driehaus' international portfolio has a 2.8% stake in the company.
Montgomery sold its stake after taking profits from Softbank's IPO. "We were happy holding it 'til the euphoria brought up its prices," said Mr. Castro.
But, while investors are eager for Internet or Internet-related companies to take off overseas, some echo the sentiment of U.S. institutional investors, wary of investing in the volatile stocks and their promise of earnings growth.
"What's happened with Freeserve, right now that's a rarity," said Nicholas Reitenbach, chief investment officer of Pinnacle International Management, LLC, New York.
Pinnacle did not buy Freeserve.
Pure Internet plays and the Internet stock craze is just in its infancy overseas, he said.
Many of the companies in Pinnacle's $340 million international equity portfolio are just now developing strategies to move their services to the Web. While about 5% to 6% of the companies say they actually have Internet initiatives, about 15% is more likely, he said. Companies overseas sometimes hesitate to play up their Internet savvy in case something should go wrong with the strategy, said Mr. Reitenbach.
