After a year of dropping assets and harsh markets, money managers handling international and global accounts are counting on pessimism about the U.S. market to fuel growth in 2002.
The 180 managers in Pensions & Investments' directory of international and global money managers reported $894 billion in U.S. institutional tax-exempt assets under management in overseas mandates, down 2.1% from a year ago.
In the same time period, the Morgan Stanley Capital International World Index fell 3.9% while the MSCI Europe Australasia Far East Index dropped 8.2%. Bond returns during the year were mixed, with the Salomon non-U.S. World Government Bond index down 0.5% and the Salomon World Government Bond index up 0.5%.
Assets managed by the top 50 managers of international accounts were barely changed at $597.8 billion, as of March 31, compared with $594.4 billion a year earlier. But on a market-adjusted basis, international assets rose 8.4%.
Assets managed by the top 50 global managers fell 12.4% to $152.6 billion. On a market-adjusted basis, these assets fell 11.3%.
Despite the declines, money managers and consultants expect fund flows into international and global accounts to rise on the continued strength of emerging markets returns and the weakening U.S. dollar. Also, managers agreed that most clients are concerned that the U.S. market is overvalued.
"There is a complete lack of confidence by a lot of U.S. institutional investors in the U.S. market generating returns over the next three-year period because of issues around valuations and whether the market is appropriately valued," said Kevin Rochford, managing director-global sales and client servicing at Northern Trust Global Investments, Chicago.
The average allocation by U.S. pension plans to overseas accounts at the end of December 2001 was barely changed at 12% of total assets, from 11% a year earlier, said Carol Parker, director of research and consulting at InterSec Research Corp., Stamford, Conn. Also, InterSec research showed fund flows into international and global accounts during calendar 2001 were around $13 billion, marginally higher than the $12 billion in 2000.
But feedback from money managers indicated flows had increased during the first quarter of 2002. Money managers with U.S. clients expect international and global accounts to be a good growth area for them, Ms. Parker added.
Emerging markets is attracting a lot of attention. Returns in emerging markets equity for the year ended March 31 were 18.6%, Ms. Parker said, making it one of the best performing asset classes. Reports from money managers showed U.S. clients generally were considering increasing investment in this asset class but had not yet launched searches, she said.
Indeed, figures from the 50 largest managers in terms of assets in international accounts show little change in the market value of assets held in emerging markets' securities. At the end of March, total assets in emerging markets held by these managers were worth $41.8 billion, compared with $41.1 billion a year earlier.
There was little change in the ranking of the top five managers ranked by combined international and global accounts, with State Street Global Advisors, Boston; Capital Guardian Trust Co., Los Angeles; Barclays Global Investors, San Francisco; and Putnam Investments, Boston, remaining in first, second, third and fifth places respectively.
Franklin Templeton Investments, San Mateo, Calif., took fourth place from Morgan Stanley Investment Management Inc, New York, which fell to seventh.
The acquisition last year of Fiduciary Trust Co. International by Templeton Worldwide raised the assets under management of the combined group, now known as Franklin Templeton, to $39.2 billion The firm is now the largest manager of global accounts for U.S. tax-exempt institutions, with $18.5 billion. Assets managed in international accounts rose 5.7% to $20.7 billion. Holly Gibson Brady, Franklin Templeton spokeswoman, said that aside from the boost to assets under management with the acquisition of Fiduciary Trust, U.S. clients also increased their allocations in international markets.
Deutsche Asset Management, New York, slipped to 10th place in the overall overseas manager ranking managers because of a 10.8% fall in assets under management, to $20.9 billion. The firm reported a 29.5% jump in assets in international accounts to $18 billion after finding that assets it had previously classified as global portfolios really qualified as international portfolios. (The assets of Scudder Investments were not included in Deutsche's figures. Although Deutsche's acquisition of the firm closed in April, consolidated numbers weren't available.)
Janus Capital Corp., Denver, was excluded from the ranking this year as the firm did not respond to the survey. In the year-earlier survey, Janus had ranked seventh based on an estimate of its assets.
Growth in international mandates from U.S. pension plans helped Fidelity Investments, Boston, jump to 13th place in combined overseas styles, from 18th, according to Derek Young, senior vice president of strategic investment services and marketing at Fidelity. Assets under management in international and global accounts were 16.2% higher, at $18 billion. Fidelity's data include assets passed to subadvisers.
Fidelity's U.S. pension plan clients had recognized the need to diversify their asset allocation and the number of searches for international accounts had increased, said Mr. Young. The firm had added 18 new international accounts in the year through March, including international mandate wins from the Public Employees Retirement System of Indiana, Indianapolis, and ChevronTexaco Corp., San Ramon, Calif., worth $250 million each, he said.
Grantham, Mayo, Van Otterloo & Co., Boston, climbed to 18th position this year after total assets in global and international accounts rose 14.3% to $13.7 billion.
Tony Ryan, partner, global business development and client relationship management at GMO, said performance had been strong over the last year and the firm had been involved in a "significant pickup in search activity." The firm had received 45 new portfolios so far in 2002, he said, but would not give details.
"U.S. institutional investors have been reassessing their strategic asset allocation, and that is driving the emergence of higher exposure to non-U.S. assets," he said.
The firm's U.S. clients had expressed a particular interest in specialist asset classes such as emerging markets and international small companies.
A 21.7% rise in assets managed in combined international and global accounts to $8.9 billion pushed Northern Trust Global Investments to 24th position, from 31st a year earlier. This number includes assets passed to subadvisers, but Mr. Rochford said the bulk of the firm's assets are managed in house.
T. Rowe Price International Inc., Baltimore, slipped back one position in the overall ranking to 22nd place after total assets for U.S. clients in international and global accounts fell 11.9% to $11.8 billion. Kurt Umbarger, portfolio specialist at the firm, said there had been a modest outflow from some of the firm's international portfolios run for institutional clients as this asset class had not been particularly rewarding for U.S. clients. But the firm's relative growth bias meant its performance numbers over the last three years also had not been as strong as value-oriented managers, he added.
A small number of clients also converted their international accounts to global accounts, which accounted for a small part of T. Rowe Price's 11% fall in assets in international-only accounts in the year to March. Merger and acquisition activity among some of the firm's clients, such as Niagara Mohawk, also led to reduced mandates and accounts, he added.
UBS Global Asset Management, Chicago, continued its trend of recent years and fell in the overall rankings to 19th place following a 3.7% fall in assets to $13.5 billion.
Assets managed in international-only accounts fell 22% to $7.7 billion after the firm decided to report separately assets managed in international enhanced index strategies, said Greg Fedorinchik, UBS spokesman. Meanwhile, assets in global accounts jumped 31% to $6.4 billion. Mr. Fedorinchik attributed this increase in business to the firm's marketing efforts.