Psst ... Wanna buy a mall in India? A company in China?

Investment managers are scouring the globe to boost returns in their private equity, real estate and hedge fund portfolios, and their investors are willing to follow them.

"This is a pure alpha play," said consultant K.C. Connors, vice president of Jeffrey Slocum & Associates Inc., Minneapolis. Investors need "to beat the bushes and turn over rocks to find good managers and good returns," she said.

Some of the U.S. institutions aiming for more international alternatives exposure include:

• New Jersey Division of Investments, Trenton, which is expected to invest a portion of its 13% alternatives allocation in international buyout funds, said Cesar Baez, directory of alternative investments, who is leaving at the end of the month. The board will not decide the percentage until the fall, Mr. Baez said. The New Jersey Division of Investments directs investment of $69.7 billion of pension assets.

• GE Asset Management Inc., Stamford, Conn., which is considering adding dedicated non-U.S. hedge fund managers, said David Wiederecht, vice president, alternatives. Mr. Wiederecht said some of the 15 hedge fund managers that manage 22 different strategies for GE are moving offshore now. GE has been a direct hedge fund investor since 1992 and has allocated about 4% of the pension trust's total assets to absolute return strategies. The firm manages the $48 billion General Electric Co. Pension Trust

• The $33 billion Los Angeles County Employees' Retirement Association, Pasadena, Calif., which has invested one-quarter of its 7% allocation to private equity and venture capital in international, said Christopher Wagner, senior investment officer, alternative assets. The plan's international alternative investments are diversified by country and economies, mainly in Western Europe, where local economies are fairly well developed, he said.

• Orange County Employees Retirement System, Santa Ana, Calif., where officials likely will examine international alternative investments, probably later this year, said Keith Bozarth, chief executive officer of the $5 billion fund. None of its 15% total target allocation to real estate and alternatives is invested internationally.

On the money management side, TPG Ventures — a subsidiary of Texas Pacific Group, Forth Worth, Texas, in which the $192.6 billion California Public Employees' Retirement System, Sacramento, owns a $60 million stake — is investing a portion of three venture capital funds totaling $650 million in India and China.

TPG executives plan to raise new life sciences and consumer goods venture capital funds that also will invest in India and China, said Vivek Paul, partner. The TPG Ventures deal is just one of CalPERS' international alternative investment initiatives.

Several hedge fund managers used by the University of Chicago have been invested in international securities for some time," said Matthew H. Stone, assistant vice president and director of absolute return strategies. The $4 billion endowment has about 18% invested in absolute return strategies.

Mr. Stone said more and more U.S. hedge fund managers are setting up offices abroad; many are moving beyond London, to Hong Kong, Tokyo and Singapore, for example. To be credible though, hedge funds must create a substantial team with in-depth local knowledge because "the legal environment in emerging markets is so much more uncertain and less defined than in the U.S.," he said.

Mr. Baez said strong institutional demand for international exposure in the private equity, venture capital, real estate and hedge fund arenas is spurring money managers to develop new products. "This is just the tip of the iceberg," he said.

While some U.S. institutional investors have been investing in private equity overseas for some time, they have stayed in Western Europe and Australia. Now, with predictions that economic growth rates in Asia will be triple that of the United States over the next 10 years, institutional investors and money managers are looking at China and India.

Other emerging regions catching their eyes include Eastern and Central Europe, and, for a few, Latin America, said Richard Frank, chief executive officer of Darby Overseas Investments Ltd., Washington. Darby Overseas is raising private equity and mezzanine funds that will invest in Asia, Central and Eastern Europe, India, Russia and Latin America. The target return is 18% net to investors, and in excess of that for private equity funds, he said.

Said Mark Heesen, president of the National Venture Capital Association, Washington: "The top of the list are India and China." The biggest areas for investing globally are energy and consumer goods, he added.

U.S. investors are also adopting a global perspective in their real estate portfolios, but are doing so largely through funds rather than direct property purchases, said Dale Anne Reiss, global director of real estate, hospitality and construction practice at Ernst & Young LLC, New York.

Pension funds are big investors in some of the large global real estate funds by managers such as Morgan Stanley Real Estate, Lehman Brothers Inc., The Blackstone Group and Apollo Real Estate Advisors LP, Ms. Reiss said.

In the last couple of months, for example, CB Richard Ellis Investors LLC, Los Angeles,received $500 million in commitments from U.S. pension funds looking to invest in property across Europe, said Andrew Neilly, spokesman.

Those looking for double-digit returns are considering privatized corporate real estate, non-performing loans in Asia and Germany, or development opportunities in South America, India, China or Eastern Europe, Ms. Reiss said. This year, interest in India increased when the government loosened its restrictions on foreign direct investments.

But some players are wary of Asia.

Acknowledging that Asia's growth prospects make it "the most exciting area today," Joe Azelby, managing director, global head of real estate, JPMorgan Asset Management, New York, warned: "Asia (also) is … the most challenging … for U.S. investors due to its distance, its culture, its language, and different tax and regulatory structure. Despite all the activity and all the promise, I don't think anyone has cracked the code yet."

The hedge fund market's move abroad is driven by the search for better return sources uncorrelated to the U.S. market.

Data from a new survey of 650 direct hedge fund investors from Deutsche Bank AG's New York-based hedge fund capital group showed 25% of respondents predict that Asia (ex-Japan and China) will be the best-performing region in 2005; 23% said Europe; and 19% said the United States. Also, 73% said they will increase their allocation to hedge funds that invest in Asia (ex-Japan and China); 55% will increase their European hedge fund investment; and 26% said they will up their investment to hedge funds that invest in the United States.

Meanwhile, larger U.S. hedge funds-of-funds managers have set up offices outside the U.S. and are hiring local talent.

"If you're seeking to do business with a hedge fund manager abroad, you have to have a footprint (in the country). You can't take the red eye and do the commute and be credible," said Henry Davis, managing director at Arden Asset Management, which has had a London office since 2002.

Mr. Davis said about 25% of Arden's funds-of-funds portfolios, which total $9.5 billion, are invested with non-U.S. hedge fund managers.

Larry Kohn, managing director and head of the hedge fund business at JPMorgan Alternative Asset Management, New York, said international exposure in his firm's $9 billion in hedge funds of funds has been steadily increasing. Just two years ago, about 63% of his firm's fund of fund assets were invested with U.S. hedge fund managers; now the money is evenly split between U.S and non-U.S. managers, Mr. Kohn said.

"We see more investment opportunity outside the country, which adds meaningfully to returns. And using international managers also significantly reduces risk, because the same investment strategies managed outside the U.S. are so loosely correlated to U.S. market returns," he said.

Carrie McCabe, CEO of hedge funds-of-funds manager FRM Research Ltd., New York, said her firm is attracting U.S. investors to its customized international hedge funds of funds and commingled funds. Its parent, London-based Financial Risk Management Ltd., has been managing hedge funds of funds since 1991, and has about $13 billion in assets.

Ms. McCabe said many clients are funding the allocation by reducing their domestic hedge funds-of-funds or traditional, long-only international equity portfolios. "They want international equity exposure that is more risk controlled than they are getting from their long-only managers," she said.

She and hedge fund consultant Simon I.M. Ruddick, managing director of Albourne Partners Ltd.,London, agreed many of the institutional investors adding international exposure already have hedge fund experience. Mr. Ruddick said they are seeking "greater geographic diversification and investment in ‘esoterica' — hedge funds that are newer, possibly using a less liquid strategy that may be closer to private equity. Rather than just keep topping up their existing strategies, these more sophisticated investors are looking for higher-return strategies where they are fairly underweighted."