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America's largest overseas investors 2005

As U.S. pension plans allocated more of their assets abroad, the top 50 American managers of foreign funds scored big gains and hit a collective record.

American money managers are becoming ever more worldly. The 50 biggest U.S. managers of foreign assets saw those assets soar by 30 percent last year, on top of a nearly 27 percent gain in 2003. By contrast, the total assets -- foreign and domestic -- of the 300 biggest U.S. money managers climbed only 12 percent in 2004. The assets of the top 50 American managers of non-U.S. funds stood at $4.3 trillion at the end of last year.

Although U.S. money managers had the wind at their backs in foreign markets last year -- the MSCI EAFE index rose 17.6 percent in dollar terms -- what sparked the greatest asset increases among the top 50 was U.S. institutional investors' reallocating assets abroad, looking for both diversification and new sources of alpha. The move is not prompted solely by a weak dollar, as investors often hedge their currency exposure through overlay programs. American pension plans dedicated 16.2 percent of their assets to cross-border equity markets in 2004, compared with 14.1 percent in 2003, according to Richard Qiu, head of research at Boston-based data firm InterSec Research Corp. He adds that tax-exempt fund assets invested internationally surpassed $1.1 trillion for the first time. The top 50's foreign fixed-income assets surged by 35 percent last year and now stand at $1.2 trillion.

The trend of U.S. institutions' making ever-bigger allocations to international securities markets will continue for the foreseeable future, contends Dev Clifford, a managing director of consulting firm Greenwich Associates. "Given the poor funding situation of many U.S. pension plans, our belief is that the evolution of more-aggressive asset allocation strategies is a trend that is far from being played out," he says. "Funds are looking for strong returns and alpha. Rightly or wrongly, they believe international markets are a better place to look than the U.S."

That conviction is handing fresh assets to internationally inclined money managers. AllianceBernstein Capital Management, for instance, enjoyed institutional asset growth last year of $36 billion that was largely driven by international and global mandates. Says David Steyn, head of AllianceBernstein's institutional business, "The growth has exceeded our best expectations." On the other hand, struggling Putnam Investments saw its non-U.S. assets decline by 22 percent last year, to $42 billion.

International and global mandates play to the strengths of the bigger active managers. As William Muysken, head of research at Mercer Investment Consulting in London, points out: "Global equity investment is overwhelmingly about bottom-up stock picking skill. Brute force of analysts on the ground helps."

InterSec's Qiu, however, sounds a cautionary note about the foreign push. "This is a relatively mature market," he says. "A 16 percent allocation from U.S. pension funds is a historical high. We think this may be a high-water mark."

The rankings were compiled by Senior Associate Editor Tucker Ewing.

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