America's largest overseas investors 2004
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America's largest overseas investors 2004

Managers of non-U.S. securities enjoyed resurgent stock markets and favorable currency translation. Their assets hit an all-time high.

The skies finally brightened for U.S. equity investors last year. After the Standard & Poor's 500 index declined by an average annual 14 percent in the three years through 2002, the index rebounded to post a 28.7 percent gain in 2003. Investors in foreign securities enjoyed even sunnier vistas, with the MSCI EAFE index gaining 35.3 percent in dollar terms, even as the MSCI emerging-markets index soared 51.5 percent.

As a result, the total amount that U.S. pension funds and defined benefit and defined contribution plans had invested in non-U.S. securities, according to InterSec Research Corp., a Stamford, Connecticut­based financial data provider, reached an all-time high of $870 billion at year-end 2003, or 14.3 percent of the $6.1 trillion in U.S. pension assets. That's quite a jump from year-end 2002, when investments in non-American securities totaled $632 billion, or 11.9 percent of total U.S. pension assets.

All in all, resurgent stock markets combined with a weak dollar proved a potent mix. The biggest 50 U.S.-based money managers controlled $3.3 trillion worth of non-American assets at the end of 2003. That's 26.9 percent higher than the $2.6 trillion that last year's top 50 and represents the highest total of non-U.S. assets since Institutional Investor began compiling this ranking in 1995.

Three firms have dominated the top of the charts since 2000: San Francisco­based Barclays Global Investors, Los Angeles­based Capital Group Cos. and Boston-based State Street Global Advisors. Both BGI and SSgA have benefited from the growth of equity indexing in Europe, and Capital Guardian Trust Co. leads the ranks of active international stock managers.

Among the notable moves in the current ranking, Axa Group rises from No. 11 to No. 5, thanks in good measure to its AllianceBernstein Institutional Investment Management business, which saw non-U.S. assets rise from $49 billion at the end of 2002 to $86 billion at year-end 2003. Of the firm's $10.4 billion in net new assets, more than half came from non-U.S. investors seeking non-U.S. investment products. Moving in the opposite direction, Amvescap falls from No. 12 to No. 27, a drop that reflects outflows from its main mutual fund subsidiaries AIM Investments and Invesco Funds Group, which together saw $5.2 billion leave their funds.

What's the outlook for the coming years? Blake Grossman, co-CEO of BGI, thinks that Asian equities, and index products based on these securities, could represent a major opportunity for his No. 1­ranked firm. "This is the one part of the world where we really haven't fully penetrated yet," he says.

Taking the long view, InterSec predicts that U.S. institutional investors will slightly reduce their allocations to overseas securities, to 13.5 percent, by 2008. Explains Richard Qiu, head of research, "You are talking about a mature market."

But it's also one that has come a long way. Twenty years ago U.S. pension funds invested less than 2 percent of their assets in non-American securities. -- Rich Blake

The rankings were compiled by Senior Associate Editor Tucker Ewing.

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