Executives at some U.S. university endowments are rethinking and reshaping their international equity portfolios.
The moves vary, from Duke Management Co. choosing more exposure to international growth stocks to the University of Notre Dame considering investing in a Japan-only or Far East regional fund.
Both are looking to increase their exposure to international markets.
University endowments and foundations appear to be on the same course as last year with their hirings of international managers.
In the first half of this year, about 18% of endowment and foundation hirings were for international equity managers vs. 17% last year, according to Eager Manager Advisory Services, Louisville, Ky.
But the size of the average mandate is shrinking. In the first six months of 1999, eight universities and colleges invested a total of $123 million with international equity managers, said Bob Stein, an associate consultant with Eager. The average placement was $15.4 million, he said. That's down from an average placement of $25.1 million during the same period a year earlier. In the first six months of 1998, Eager recorded 12 international manager hirings, totaling $226 million. Three of those endowments or foundations did not reveal the amount invested.
U.S. universities continue to re-evaluate their international portfolios. The University of Notre Dame, South Bend, Ind., is considering changing the structure of its international equity portfolio. And the changes could lead to the hiring of a different manager or managers, said Scott Malpass, chief investment officer for the $2 billion endowment, which also manages another $300 million in operating reserves for the university.
On the top of Notre Dame's list is its strategy for Japan. He said the endowment is deciding whether to tell its equity managers to raise their allocations to Japan, where -- in aggregate -- they currently are slightly underweight compared with the Morgan Stanley Capital International Europe Australasia Far East index.
Commenting on this year's runup in Japanese markets, he said, "If what's happening in Japan is real, we want to have a full weight."
The endowment's international public equity target is 20% of the fund, and at the end of September the allocation was a little more than 19%, Mr. Malpass said. Slightly less than 10% of the endowment's international equity investments are in Japan.
Another possibility for increasing exposure to Japan is investing in a country or regional fund, he said. The endowment's investment staff also plans to "take a look at private equity in Asia in the spring," he said.
He declined to name Notre Dame's current roster of international managers.
He is also concerned about the weighting of the endowment's global managers vs. its international managers. Both currently make up 40% of the endowment's international equity target. "Do we want to have as much in global vs. international?" he asked. Emerging-markets equities make up the remaining 20%.
Mr. Malpass stressed that ideas for changes in Notre Dame's international portfolio are preliminary. They are likely to be presented to the board at its October meeting.
Duke Management Co., Durham, N.C., recently hired two international managers, Artisan Partners LP, Milwaukee, to run an active EAFE portfolio and Hansberger Global Investors, Fort Lauderdale, Fla., to manage emerging-markets equities, said Eugene McDonald, president. He declined to disclose the amount of assets each will run for the company, which oversees the $2.3 billion endowment for Duke University. Funding for each manager will come from a readjustment of existing international managers, he said.
The endowment is currently at its target international equity allocations, with 11% in overseas developed markets and 5% in emerging markets, Mr. McDonald said.
Duke chose Artisan because it wanted an international growth manager to complement the value style of its other international managers, he said. It liked Hansberger because of its experience in emerging markets and its connection to Templeton Worldwide Inc., Fort Lauderdale. Thomas Hansberger, the firm's founder and chief executive officer, was a president at Templeton before starting his own firm.
The endowment's other managers running international developed markets equity portfolios are: Bank of Ireland Asset Management (U.S.) Ltd., Greenwich, Conn.; Silchester International Investors, New York; TT International, London; and Barclays Global Investors, San Francisco. Its other emerging markets managers are: Genesis Asset Managers, London; Grantham, Mayo, Van Otterloo & Co. LLC, Boston; and City of London Investment Management Co. Ltd.
Other endowments are still looking for international managers. Ohio State University's $1.1. billion endowment is evaluating about 12 active, international equity managers. The Columbus-based fund is looking to up its international equity exposure to between 6% and 7% of the fund from its current 3%.
Barclays Global Investors currently runs that portion of the fund in a passive portfolio.
Ohio State wants an active manager because "international equity markets are such that a good manager can exploit inefficiencies," said Jim Nichols, chief investment officer of the endowment.
Funding would come from cash flow, he said.