The 200 largest pension plans saw their total assets invested in international investments increase at a considerable clip.
Combined, the top 200 plan sponsors had total defined benefit assets of $419.1 billion in active international investments as of Sept 30 — an 11.6% increase from a year earlier. On a market-adjusted basis, the international investments returned 9.6%.
Investments in international equity, in particular, were almost entirely responsible for the nearly $44 billion increase in international securities assets.
The group of plan sponsors saw their total assets invested in international equity increase 13%, to $379.5 billion at the end of September. On a market-adjusted basis, the assets returned 10.2%.
Corporate pension plans, overall, increased their allocations to international equity more than other institutional investors. The average corporate defined benefit plan in the top 200 had 19.3% of its assets in non-U.S. stocks in 2005, compared with a 17.5% allocation in 2004.
Public pension plans, on average, also had an increase in international equity allocations, growing to 17.8% from 16.4% in 2004. Union plans' allocations increased as well, to 7.7% from 7.1%.
While total assets in international equities increased, assets in international fixed income decreased only slightly, to $39.6 billion from $39.7 billion. On a market adjusted basis, the international fixed-income assets decreased 3.3%.
Market appreciation in international equity was largely responsible for the gain among defined benefit plans in the top 200, said William Libby, director of InterSec Research, a Boston-based research subsidiary of State Street Corp. that covers international investments.
"We didn't really see institutional investors making new allocations or new investments in international markets last year," said Mr. Libby. "But it was a huge year for investment returns on equities, which boosted international assets overall."
For the year ended Sept. 30, the Morgan Stanley Capital International All-Country World index returned 25.9%, according to the Morningstar Separate Accounts Monitor. The MSCI Europe Australasia and Far East index returned 25.8% for the same period.
Among the defined benefit plans in the top 200, the State Teachers Retirement System of Ohio, Columbus, saw one of the most significant increases in its international investments during the 12 months. The $59 billion system's active international equity assets increased 26% to $12.8 billion in the year ended Sept. 30. The system also has $1.9 billion in passive international equities, up $400 million during the year.
The $3 billion overall increase in STRS' international equity investments was driven by the performance, according to Betsey Lynch, assistant director of investments who oversees the system's international investments. The portfolio returned 34.9% for the 12-month period, adding $4 billion to the portfolio's value, Ms. Lynch wrote in an e-mail. The system withdrew about $880 million from the portfolio during the year.
As of Sept. 30, the system had $10.6 billion invested in developed international equity markets, and $4.1 billion in emerging markets international equity.
While many pension plans have not allocated new assets to international investments, many might be looking at some similar rebalancing as a result of the recent performance, InterSec's Mr. Libby said.
"There are a lot of plans right now that are overweighted toward international. They'll probably begin cutting their international investments and begin putting the gains in other asset classes."
David Hammerstein, principal and chief strategist at consultant Yanni Partners, Pittsburgh, said that rather than rebalancing, pension plans might move to a more global equity strategy, away from separate domestic and international portfolios.
"The lines are becoming blurred between international and U.S.," said Mr. Hammerstein. "There could be a movement toward a more general, global equity portfolio that would eliminate the constraints associated with having separate portfolios. As corporations become more global, pensions may need to take a more global approach to investing."