Cross-Border Assets Drop $76 billion in 2002

May 16, 2003 ( - Total US tax-exempt cross-border assets dropped to $629 billion at the end of 2002, down $76 billion from the previous year.

Most of the decrease was attributed to the decline in global equity markets, as cross-border equity continued to represent the vast majority of all cross-border assets under management and cash flows. Also, for the first time in a number of years there was a net withdrawal for cross-border investments:   $7 billion, according to results a new survey published by InterSec Research.

The withdrawal is being attributed to two factors.   First was the surprising performance of the MSCI EAFE index, which turned in a better performance than the S&P 500, allowing domestic pension plans to maintain international exposure without increased funding.

Second, cross-border equity attracted only $27 billion in initial funding in 2002, less than half of the previous year. The drop is at least partially attributed to the delay in manager replacement while many plan sponsors undertook asset-liability studies in the wake of poor overall equity returns.   “Taking into account this timing issue, the moderate outflow in 2002 does not necessarily indicate a trend of shrinking opportunity set for managers of cross-border mandates,” says Richard Qiu, Research Analyst at InterSec.

Despite the drop in assets and the net withdrawal at year-end 2002, cross-border investment accounted for 11.9% of total US pension assets, rising slightly from 11.8% a year ago.   InterSec predicts this number will continue its ascent, with a target surpassing $1 trillion in 2007 – 12.7% of total US pension assets.

Turning to active international equity – the most popular mandate among US tax-exempt institutions – most of the top new business winners continued to be US-based managers. At the top were three managers who have reigned supreme over the business for many years. But more noteworthy is the fact that two managers who previously had little institutional assets under management for this asset class entered the top ten list for the first time.

Value managers attracted remarkable cash inflow with the excellent performances turned in recently, compared with growth managers who suffered substantial loss of assets. In new business won by international equity managers, however, there was still a good mix of growth, value, and core managers.  

Per InterSec policy, Qiu said the names of the top performing managers could not be released.