Total US tax-exempt cross-border initial funding in active mandates reached $31.4 billion in the first half of 2004.
This is an all-time high for any half-year period according to midyear initial fundings survey results released by InterSec Research. While this indicates continued strong interest in international investment by US pension plans, the level of funding was heavily influenced by replacement mandates resulting from the mutual fund industry’s market-timing investigations and the restructuring of international investment programs at several major pension plans. Initial fundings include newly funded separate accounts or newly created pooled funds.
International equity value managers continued to outperform which contributed to higher fundings to value managers than to growth managers. Despite this performance discrepancy, many large pension plans continue to implement style diversification in their international investment programs. Active international equity initial funding to value, core and growth managers in the first half of 2004 were $6.8 billion, $11.3 billion and $3.3 billion, respectively.
Continued outperformance of small-cap stocks relative to large-cap stocks has driven significant interest in international small-cap mandates. All-cap international equity portfolios also benefited from their exposure to small-cap and mid-cap stocks. Approximately 65% of all active international equity initial funding in the first half of 2004 was captured by all-cap products.