Cross-border investment of pension assets has exceeded $2trn (e2.24trn), or 16% of world pension assets, says research consultant InterSec in its latest annual Study of Global Pension Assets.

Tabitha Rendall, director of global research, comments: “ This represents an increase of 30 times since InterSec Research first recognised this as a growth area 25 years ago.
“ The introduction of the euro has had a significant impact on pension funds investing outside their home market but within the eurozone.
“ For the moment at least, whilst eurozone pension funds are treating other eurozone countries as domestic markets, they are still reporting the investments as foreign which means we have seen a tripling of the level of cross-border investments by Continental European pension funds.”

However, figures for foreign investment by US pension funds buck the trend over the last year, with InterSec recording the first fall since its data collection began.
Cross-border investment as a percentage of total US pension assets declined to 11% from 12.2% the previous year.

Carol Parker, director of North American research at InterSec, notes: “This is largely due to the fall in world stockmarkets. We do not believe that it suggests a reverse in the long-term trend of increasing cross-border investment.”
On the contrary InterSec forecasts that US tax-exempt assets invested overseas will reach $1.5trn by 2005, amounting to 13.5% of total US pension assets.

The research group notes that while contributions from US pension funds to cross-border mandates still represented a positive $11bn in 2000, the level was low by recent historical standards (in 1996 the level was $50bn).
While in the past, poor performance in international markets relative to the US caused plan sponsors to accelerate their international funding to regain targeted levels, in 2000 international and domestic markets fell in tandem and plan sponsors took relatively little action to rebalance, says InterSec.

Global ex US mandates continued to be the predominant allocation of US plans, which appear to have had little appetite for global (including US), European, Pacific Basin, Japan or small cap equity briefs.
Flows into emerging specialist portfolios were positive for 2000, but were way below the levels of funding seen in 1996 and 1997, InterSec adds.