International investments rose a solid 17% to $1.533 trillion at year-end 2012, according to Pensions & Investments' annual survey of the largest money managers of U.S. institutional assets.
International equity assets under management rose 15.1% to $1.26 trillion and international fixed income rose 27.3% to $270 billion in 2012.
Even after adjusting for the 4.5% gain in the Citigroup World Government Bond index, international fixed income increased 21.9%. Equities had a 2% decrease after adjusting for the 17.4% gain in the MSCI Europe Australasia Far East index.
“There was momentum to diversify outside of the U.S. and transition toward a more global portfolio,” said Jeff Schutes, global leader of manager research at New York-based Mercer. “Everyone's chasing alpha, and individual securities selection may or may not be able to get you what you need, so clients are looking for managers to not only select stocks, but to be nimble and to be able to move between countries.”
The uptick in international investments can also be attributed to clients and investors getting back on track after the market crash in 2008.
“We saw people disinvesting in international and emerging markets (in 2008),” said Iain Douglas, New York-based investment consultant at Towers Watson & Co. “I think it's fair to say that all the clients had more urgent things on their plates than looking at international investments. But now investors have taken a long, hard look at those allocations, especially in regards to emerging markets, and are realizing that they heavily underweighted those markets.”
Mr. Schutes agreed. “Emerging markets now are becoming much more mainstream,” he said. “In the early days, you worried about the quality of accounting and information and labor issues, but the emerging markets you work with today are more mainstream economies, and so the fear factor has gone away. I think that now, almost everyone considers emerging markets in their asset allocation strategy.”