Many large active international equity managers are struggling with a drop in both assets and clients, the result of declining markets and out-of-favor investment styles.
Among the firms that suffered the biggest asset drops last year: Acadian Asset Management, Boston; Deutsche Asset Management, New York; Janus Capital Corp., Denver; Marvin & Palmer Associates Inc., Wilmington, Del.; and J.P. Morgan Investment Management Inc., New York.
A lucky few international managers managed to buck the trend and sharply increase active international assets they manage for U.S. institutions. Among them: American Express Financial Corp., Minneapolis; BlackRock Inc, New York; and Artisan Partners, Milwaukee.
Firms that were able to limit their exposure to growth stocks - particularly in the telecommunications, technology and media sectors - and emerging markets were the most successful last year.
Acadian lost 42% of its active international equity assets from U.S. institutional tax-exempt clients in 2000, plunging to $3.1 billion from $5.3 billion. Acadian, a value manager, lost a significant number of clients in the first half of 2000 after its style had been out of favor for several years.
The Morgan Stanley Capital International Europe Australasia Far East index dropped 15.2% in 2000.
Moving to growth
"We have a fairly strong value orientation, and 1999 was a difficult period for value," said John Chisholm, executive vice president of Acadian. "A number of our clients reallocated from value to growth managers" in 2000.
"All the terminations were in the first half of the year. In the second half, we had no terminations. We've lost no clients since the end of June 2000."
Indeed, he added, Acadian won three new mandates - one an active EAFE mandate from a U.S. public pension fund he declined to name, and two from Japanese clients - for its value style, which were funded in the first quarter of 2001.
Deutsche Asset had a 29% decline in active international equity assets in 2000, to $5 billion from $7 billion. Spokeswoman Missy DeAngelis said the drop was "a combination of down markets and client attrition."
Janus' active international equity portfolio lost 19% in 2000, with total assets falling to $21.9 billion from $27.2 billion. Jeff Snyder, a spokesman, did not acknowledge that some of the firm's losses were because its growth investment style is out of favor, simply saying that the firm had "poor performance." Many of Janus' portfolio managers added to their cash holdings last year, he said, and some moved investments from international to U.S. companies, both of which also added to the decline in overall international equity assets.
Emerging markets trouble
Pictet International Management Ltd., London, is a smaller money manager that lost about 42% of its active international equity assets managed for U.S. institutions in 2000, with assets falling to $1.1 billion from $1.9 billion at the end of 1999.
Kevin McLean, head of U.S. mutual funds for Pictet, said a big part of the losses came from emerging market investments. Pictet's emerging market portfolio fell to $100 million from $190 million.
Marvin & Palmer, known as a growth manager, had a 33% decline in its active international equity portfolio last year, with assets falling to $5.9 billion from $8.8 billion.
Steve Gannon, director of marketing for Marvin & Palmer, declined to comment on the record about the losses.
J.P. Morgan officials could not be reached for comment by press time.
Jeb Doggett, a managing director at Barra Strategic Consulting Inc., Darien, Conn., said he thinks the declines at many firms "were largely a function of market conditions." However, he added, "My sense is the buyers (pension funds) are getting smarter and have higher standards for their money managers," leaving them when performance is not good.
But there were some firms that managed to perform well.
American Express' active international equity assets under management increased 51% last year, growing to $11.3 billion from $7.5 billion at the end of 1999.
"Some of our increase was from market movements, but we also got $1.8 billion in new mandates last year," said Peter Lamaison, president and chief executive officer of American Express Asset Management International, London, which handles all of the firm's international accounts. About 75% of the new clients were U.S. institutional investors, he said.
AmEx had great success with its strategy benchmarked to the MSCI All Country World index ex-U.S. and with its "Europe only" strategy, according to Mr. Lamaison.
He said the ACWI ex-U.S. benchmark, which dropped by 16.34% in 2000, is popular now because it includes emerging markets. "There's been a move away from public and corporate (pension) funds giving out regional emerging markets mandates," he said.
Mr. Lamaison said AmEx's ACWI ex-U.S. strategy did well because "we didn't have much money in emerging markets. We have a process that we follow, and when it's not right to be in emerging markets, we don't invest."
He added AmEx had "outstanding" performance in its Europe-only strategy, for which it followed a pan-European approach and focused on picking appropriate industry sectors and stocks throughout Europe.
Stocks in four sectors did particularly well for the firm in 2000. They were: in insurance, ING Group, Amsterdam; in food retail, Tesco PLC, Hartfordshire, England; in general retailing, Next PLC, London; and in pharmaceuticals, Aventis AG, Strasbourg, France.
He said the returns for the strategy were "down a bit" in 2000 but were strong enough to keep the firm gaining investment mandates.
Good year for Artisan
Although it follows an international growth strategy, Artisan Partners managed to have strong performance and gain assets last year because "we reduced our exposure to telecom, technology and media stocks in early 2000," said CEO Andy Ziegler.
Artisan had a 48% gain in active international equity assets in 2000, growing to $3.1 billion from $2.1 billion.
The firm won 11 investment mandates from institutional clients in 2000 and another 40 accounts, including assets from 401(k) plans, that went into its mutual funds because they were too small to be in separate accounts.
BlackRock had a 171% increase in active international equities last year, rising to $2.65 billion from $977 million in 1999.
Barbara Novick, managing director, said the firm had "very strong returns in its European investment products and in its Pacific Basin investments last year."
The firm hired a five-person European equities team from Scottish Widows Investment Management Ltd., Edinburgh, last year, which also helped attract more clients.
Ms. Novick said the firm doesn't follow a pure growth or value strategy with its international equity investments, which she said use a "core" equity style.