There is more "interest and action" in NISA strategies by institutional investors this year than in 2004, he said. "Year to date, we have added or are at contract stage with six to eight new clients, and have a very active book in terms of prospects going forward."
Mellon Financial, second among overlay managers, reported $45.87 billion in U.S. institutional tax-exempt assets in overlay strategies at the end of 2004. Mellon gained an additional $22.8 billion last summer when it agreed to acquire the 70% of pure currency overlay manager Pareto Partners that it did not already own.
Mellon, which recognizes assets based on the notional value, is participating in as many as six overlay searches, said Tom Hazuka, chief investment officer of Mellon Capital Management, a subsidiary of Mellon Financial.
Mellon's new clients include the $1.2 billion Arlington County (Va.) Employees' Retirement System, which hired the firm this spring to manage a $100 million currency overlay portfolio. Steve Watts, assistant director/pension investment, did not return two calls seeking comment.
State Street Global Advisors, which came in third with $30.54 billion in U.S. institutional, tax-exempt assets in overlay strategies at the end of 2004, is already up about $5 billion so far this year, said Mr. Lowe.
"We're seeing more (clients) implement strategic overlay management in the last six months," he said. "We've had three times as many conversations about portable alpha, the lead time, getting education and finding out what they need to do" to get started.
Fonds de Reserve pour les Retraites, Paris, hired the firm last October to manage a non-euro overlay for a three-year period.
At No. 4, Bridgewater Associates is experiencing a similar wave of interest. Most of the 23% growth in total assets under management so far this year is coming from overlay strategies, Mr. Mahoney said.
San Joaquin County Employees Retirement Association, Stockton, Calif., hired Bridgewater and FX Concepts Inc., New York, earlier this year as its active currency overlay managers, each overseeing $187.5 million, said Robert Palmer, retirement administrator. The currency overlay is a "positive enhancement to our international returns," Mr. Palmer said.
Bridgewater is now a finalist in 20 searches for overlay strategies, Mr. Mahoney said. The firm reported $27.9 billion in total U.S. institutional tax-exempt overlay assets at the end of 2004.
The $12.8 billion San Francisco City & County Employees Retirement System hired Bridgewater; Pareto Partners, New York; and Barclays Global Investors, San Francisco, late last year to manage the currency overlay of its $2.1 billion international equity portfolio, said David Kushner, deputy director of investments. The contracts are expected to fund as early as July 1, after the system resolves such issues as what asset class the currency overlay is put under, and talks to its custodian about accounting implications on the contracts.