Leading U.S. pension funds have committed or moved to new managers a total of more than $2.4 billion for active international investment programs since the beginning of the year, according to pension fund executives and money managers interviewed by Pensions & Investments.
A variety of corporate and public funds gave their international equity managers more money, negotiated contracts, hired new overseas managers or continued searches during January and the first weeks of February.
Most of the pension funds' mandates were pegged to Morgan Stanley Capital International's EAFE or ACWI ex-U.S. indexes, money managers said.
The All Country World Index ex-U.S. has exposure to Canada and emerging markets. The Europe Far East Australasia index does not.
Funds made the changes in the months after international markets outperformed domestic. Japan's Nikkei 225 was up 36.8% last year, and France's CAC-40 was up 51.1%. The Standard & Poor's 500 stock index was up 21%.
For example, Public Employees Retirement Association of New Mexico, Santa Fe, last month increased the amount managed by one of its three international equity managers. The $8.1 billion pension fund gave $90 million to Oechsle International Advisors LLC, Boston. The fund made the move to get closer to its target weighting for Oechsle, which was 30% of the pension fund's international equity assets, said Robert Gish, director of investments. Overall, the fund's weighting to international equities is close to 19%.
And other pension funds started the year by looking at their strategies for investing overseas.
The Iowa Public Employees' Retirement System, Des Moines, is negotiating contracts with two active European equity managers to run a combined $900 million, replacing current managers Brandywine Asset Management, Wilmington, Del., and Clay Finlay Inc., New York.
Both portfolios will be risk-controlled, with managers making stock-picking decisions. The point is to "try and control some of the decisions managers can make on the country and sector basis," said Jeffrey Beisner, investment officer for the $15.1 billion fund.
Both funds last year adopted the ACWI ex-U.S. as their benchmark for international equities.
As pension funds moved money, some money managers started the year winning big. One is Putnam Investments Inc., Boston, which has seen a net inflow of more than $1 billion to core international equity portfolios from existing pension clients, said John Brown, managing director, chief of institutional management. One corporate pension client gave the manager an additional $325 million, while a Taft-Hartley plan gave it $710 million, he said.
Putnam this year also has won a $250 million core international mandate from a large public fund, a new client, Mr. Brown said.
He declined to name the funds.
Metropolitan Life Insurance Co., New York, also gave Putnam a $400 million core EAFE mandate from its taxable assets. That money had been with Santander Global Advisors, which closed late last year. The company was a joint venture between Spain's Santander Bank and Met Life.
Bank of Ireland Asset Management (U.S.A.) Ltd., Greenwich, Conn., also has seen at least one client looking to increase its exposure to international equities. One corporate pension fund client has promised the firm an additional $150 million, said Denis Curran, president. He declined to name the fund.
Pension funds have been making moves for different reasons.
The New Mexico fund 's other international managers, Capital Guardian Trust Co., Los Angeles, and INVESCO, Atlanta, run about $1.1 billion and $138 million, respectively, Mr. Gish said. Capital Guardian has a target of 50% of the fund's international equity allocation, while INVESCO's target is 20%.
The fund, however, decided not to increase its mandate with INVESCO, which is slightly under its target. The manager "may get an increase," Mr. Gish said. But, he said that INVESCO's investment style "is more value-oriented" than Oechsle's, and value overseas is "right now under performing."
The Iowa fund, meanwhile, has chosen two active European equity managers and is looking to have contracts signed by April 1. Each will run about $450 million in risk-controlled portfolios, said Mr. Beisner.
Brandywine and Clay Finlay run a combined $700 million for the system. Neither manager responded to RFPs issued in October, Mr. Beisner said. About $200 million in additional funding for the two new managers likely will come from a $600 million passive EAFE account run by Barclays Global Investors.
Other funds still are rebalancing from U.S. to non-U.S. equities, said Stephen Langer, managing principal and director of marketing with Oechsle. There is also some movement of assets to active from passive strategies, he said. That comes from the ability of active international managers to outperform the EAFE and ACWI indexes, he said.
And some pension funds are beginning to look at the investment style of active international managers in the same way they do domestic. There's some movement of money from "active value to active growth," he said. He characterized Oechsle's style as earnings driven and thus growth oriented.
But a flurry of activity from pension funds and other tax-exempt investors at this time of year is not unusual, others said.
"January is a strong month each year," said Don Reed, chairman and chief executive officer, Templeton Investment Counsel Inc. in Fort Lauderdale, Fla. "Pension funds often rebalance at this point in time."
He added that tax-exempt investors were showing interest in core, international funds first and emerging-markets second. Historic timing also might have played a part in the increase in search activity, he said.
"The Y2K issue slowed down activity," he said. "There's probably some catch up."
But some managers said searches for international managers increased during January and February, compared with the same period last year.
A variety of searches for international managers are on the table. Scudder Kemper Investments, for example, is in the running for 39 core, international equity searches by tax-exempt investors. The searches total $2.7 billion, a spokesman said. The money manager is also in the running for 16 emerging markets mandates worth a total of $875 million, and nine Japanese equity searches that total $875 million.