Foreign stocks attract larger share of US pension funds
Fresh billions of dollars from United States corporate-employee-benefit funds are beginning to flow into European and Far Eastern stock markets as international equities take on new appeal for managers of pension portfolios.
More and more major companies are following the lead of such giants as IBM, Exxon, W. R. Grace, GTE Sylvania, Champion International, United Technologies, and the Ford Foundation in investing in overseas stocks.
In the process, the business of international investing is undergoing a metamorphosis, much the way other professional-services industries have been globally transformed in past decades.
The latest ready-to-move, sizable chunks of money are America's two biggest pension funds, American Telephone & Telegraph Company and General Motors, which are preparing to place a portion of their multibillion-dollar pension programs abroad. Sears, Roebuck & Company also may be poised to put part of its pension money into foreign stock markets.
Of the 1,600 largest US corporations, 17 percent now invest pension funds abroad, up from 7 percent three years ago, creating an aggregate total in foreign stocks of $4 billion, reports Greenwich Research Associates, a business-research and consulting firm to financial institutions operating out of Greenwich, Conn. The 1,600 companies tracked by the firm have aggregate employee-benefit-fund assets of about $370 billion.
''By the end of 1985, those same 1,600 corporations plan to increase their international investments to almost $17 billion, or more than a four-fold gain, '' says Rodger Smith, the firm's executive vice-president. As the close of 1985 rolls around, he foresees 25 to 33 percent of the 1,600 companies having employee-benefit money in foreign stocks, up from the current 17 percent.
By Greenwich Research projections, those investing abroad also will increase their foreign commitments from an average 4.6 percent of their assets under management now to about 6.3 percent at the end of 1985.
It may seem the cry is ''The Americans are coming, the Americans are coming, '' but in fact the ''invasion'' of foreign stock markets began about five years ago. Even so, it really only began picking up steam over the past year or so with a big spurt coming in the past few months.
Ten years ago, investment of US employee-benefit-funds overseas was practically nonexistent. Five years ago, ''you could count the US institutional funds invested abroad on the fingers of both hands,'' says Donal Botkin, vice-president at Frank Russell Company, a pension consulting firm in Tacoma, Wash. He's also a vice-president and director of Frank Russell International, a division based in London.
His firm estimates that nearly one-third of US corporations are considering making non-US investments for their pension plans. ''International investing of US pension funds has been considered a prudent investment for at least the past five years,'' Mr. Botkin says. ''What's happening now, as the dollar begins to weaken and as people are seeing the US market hit all-time highs, the attractiveness of international markets is growing once again.
''We went through a period of a couple of years where the dollar was quite strong and the US stock markets were growing in strength while some foreign markets weren't doing as well. That put a wet blanket on some people's international-investment programs. That's coming off in 1983.''
Botkin stresses that the American investments abroad are not in gold, diamonds, oil and gas futures, ''or anything like that.'' Rather, the rush is into ''seasoned, well-established, strong companies. If you look at the whole universe of available equity investments in the world,'' he says, ''50 percent of it is outside the US. For American pension funds to ignore that 50 percent - for that matter, for any US investor to ignore that entirely - is really foolhardy.''
By tossing international stocks into a pension portfolio, American managers are buying into companies ''not managed the same way as US companies and that are traded in markets not affected by the same factors affecting US markets,'' Botkin says. That provides portfolio diversification.
But the key, he stresses, is the rate of return. There are additional costs involved in international investing that can't be disregarded, but they're overridden by the growth opportunities.
''There just isn't a Singapore in the US or a Malaysia,'' he says. ''They're in a part of the world that's rich in natural resources and that has hard-working populations. It's a little bit like being able to buy into the frontiers of America 150 years ago.''