STAMFORD, Conn. - U.S. tax-exempt investors slashed their funding for new international accounts by half in the first six months of 2002.
And the number of new international equity mandates plummeted as well, down 40% from the first half of 2001.
Total initial funding for international mandates fell to $14.2 billion in the first half, from $28.3 billion for the first half of 2001.
The half-year report by InterSec Research Corp., Stamford, also showed initial funding of active international equity mandates, which represents the largest chunk of cross-border investment, fell to $9.8 billion in the first half of 2002 from slightly less than $18 billion for the first six months of 2001.
"New business is drastically down," said Carol Parker, vice president of research and consulting manager at InterSec. She pointed out there is a six- to nine-month lag between the time searches begin and mandates are awarded - a period that coincided with Sept. 11 and its aftermath, when international equity markets were bleak.
"That had a big effect," she said, adding international equity markets also were very volatile at the time.
InterSec's survey includes about 200 money managers who manage about 95% of all international assets for U.S. tax-exempt institutions, according to Ms. Parker.
Equity mandates drop
The number of new international equity mandates also was down sharply, according to InterSec's report. In the first half of 2002, 95 mandates were won by 39 managers; in the first half of 2001, there were 158 mandates won by 55 money managers. InterSec estimates that nearly 140 money managers competed for the 2002 mandates.
The number of international equity mandates of $100 million or more also fell, according to the report - 17 were awarded in the first half of 2002 vs. 40 a year earlier.
The largest in the first half of 2002 was an $820 million international value equity hire awarded by the $48 billion Pennsylvania Public School Employees' Retirement System, Harrisburg, to Mercator Asset Management, Fort Lauderdale, Fla.
Money managers that won the most new business "are the ones you'd expect,' said Ms. Parker - Capital Guardian Trust Co., Los Angeles; Putnam Investments Inc., Boston; and Bank of Ireland Asset Management (U.S.) Ltd., Greenwich, Conn.
However, she pointed out that in the first half of 2002, the big winners took in much less money than in the first half of 2001.
"Last year the big winners in the first half took in over $2 billion each," she said. "This year they took in barely over $1 billion each."
There also was a definite style bias in the mandates awarded for 2002. International core equity made up about 42% of the new hires; international value equity, about 36%, and international growth equity, about 22%. In 2001, international core equity mandates totaled 43%, while 24% were for value and 32% for growth.
The number of emerging market equity mandates awarded in the first half of 2002 was about $400 million, down slightly from the first half of 2001. However, Ms. Parker pointed out much emerging market equity investing is done through existing commingled funds, and InterSec's survey only picks up new separate accounts and new commingled funds.
Ms. Parker also pointed out many plan sponsors decided to do asset allocation studies in the second half of last year, while their pension funds were buffeted by the volatile equity markets. There is a lag time from when the studies are done until the funds start looking for managers and then hire managers.
"The studies that were going on have caused pension funds not to fund new allocations now," said Ms. Parker.
She thinks the international equity hires may show an increase for the second half of 2002, although she said it's possible it might take until 2003 for sponsors to do asset allocation studies and fund new mandates.