THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Sunday, November 13, 1994 TAG: 9411120104
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Medium: 99 lines
The risks are daunting: political instability, wildly fluctuating prices, lax disclosure laws and few of the safeguards that investors take for granted in the United States.
American investors, however, are developing an appetite for overseas securities, including stocks and bonds from several less developed countries.
In less than five years, the assets of U.S. mutual funds concentrating on foreign stocks have grown tenfold to more than $100 billion.
This burgeoning demand was one of the reasons NationsBank Corp. cited last week for creating a joint venture with a British money-management company.
By teaming up with London-based investment adviser Gartmore plc, it will be better able to provide foreign investments to pension funds, retirement plans and individual investors in the United States, the Charlotte-based banking company said.
NationsBank's effort to broaden its investment offerings is evidence of another development in the financial-services arena - the aggressive campaign by commercial banks to sell securities and investment advice.
``NationsBank is one of the banks in the country that have clearly decided they are going to be an investment powerhouse,'' said Louis S. Harvey, president of the Boston consulting firm Dalbar Financial Services Inc.
What prompted NationsBank's search for international expertise were the efforts of American investors to profit from economic growth in such places as Asia and Latin America while diversifying their portfolios, said Charles G. Smith IV, chief investment officer of NationsBank Trust and Investment Management.
When putting in place a system to deliver international investment services, ``we faced a classic decision,'' Smith said. ``Do we build it? Do we buy it? Do we form an alliance?''
NationsBank decided to team up with someone already established in global investing. But before settling on Gartmore, it interviewed several money-management companies in Europe.
About then, Gartmore ``was in the process of building up its contacts with (corporate retirement) plans in the United States,'' said David W. Watts, the firm's investment director.
Organized in 1969 and partly owned by a large French bank, Gartmore initially managed closed-end funds. Later, it expanded into mutual funds and began handling investments for pension funds in 1979. Today, Gartmore manages $32 billion in assets, placing it among the top 50 fund managers in Europe.
Because it has relatively few clients outside Britain, Gartmore stands to gain from an alliance with NationsBank, Watts said.
The partnership, dubbed Nations Gartmore Investment Management, will be based in Charlotte and will start with $750 million in assets when it opens next spring, the two companies said.
NationsBank will contribute $500 million from an international mutual fund that has been managed by a NationsBank affiliate in London. Gartmore will put in $250 million that it has managed in the United States.
The results of a recent survey of 50 large banks, insurance companies, pension funds and mutual funds suggest that future demand in the United States for foreign securities will be robust.
``Eighty-four percent of respondents said they expect to increase their international equity holdings over the next five years,'' said Broadgate Consultants Inc., the New York financial consulting firm that conducted the survey last July and August.
In addition, ``three-quarters of the respondents believed they would be allocating significantly more funds offshore over the next 18 months,'' Broadgate said.
``Respondents also indicated a willingness to look farther afield for superior returns,'' the consulting firm noted in its survey results. ``Almost 9 out of 10 said that emerging markets such as Latin America, Asia and South Africa have become more important to their investment strategy over the last two years.''
NationsBank isn't the only American banking company seeking a bigger share of the money-management business. In 1993, Mellon Bank in Pittsburgh bought The Boston Co. money-management firm from American Express Co. and purchased mutual-fund manager Dreyfus Corp. earlier this year.
Meanwhile, First Union Corp., another Charlotte-based bank holding company, purchased Lieber & Co., which manages the Evergreen group of mutual funds.
The push by banks into the money-management field has been fueled by a broad public acceptance of mutual funds and increased concern about retirement income among members of the baby boom generation, Harvey said.
But banks' efforts to buy their way into the business can be costly. ``The really good and profitable (money-management firms) are extremely expensive,'' Harvey said.
The Glass-Steagall Act - the Depression-era legislation that segregated banks making loans from those that underwrite and distribute securities - is still on the books, he noted.
And any commercial bank acquiring a money-management firm cannot rule out a time-consuming challenge from the Securities and Exchange Commission or a large securities brokerage firm, Harvey said.
``If that cloud was lifted, you'd see more banks shopping for money managers,'' he said. ILLUSTRATION: Graphic
STAFF
SOARING FUNDS
SOURCE: Investment Company Institute
[For complete graphic, please see microfilm]
by CNB