For further information: Carolyn Kay Brancato
The Conference Board
(212) 339-0413
For Release Thursday, May 6, 1999 Release #4484A
U.S. INSTITUTIONAL INVESTORS CONTINUE TO DOMINATE OVERSEAS MARKETS: Despite Slight Dip, Foreign Equities of U.S. Institutions are Far Greater Than Closest Competitors
U.S. institutional investments dominate those for all other countries, giving the corporate governance activism in the U.S. great potential influence over global investments, The Conference Board reports today in its Institutional Investment Report.
Overall, U.S. institutional investor financial assets were six times those of the United Kingdom, ten times those of France and Germany and nearly four times those of Japan in 1996. As a result, the financial assets of U.S. institutions made up the majority (61.9%) of the five country total.
The largest 25 U.S. pension fund holders of international equity, ranked by their foreign equity holdings, held $181.1 billion in international stocks as of September 30, 1998. These 25 pension funds accounted for 42% of the $432 billion foreign equity held by all U.S. investors in the third quarter of 1998. This percentage remained flat from 1997 when the largest 25 pension funds held $181.5 billion, which was roughly 42% of $436.3 billion of all U.S. foreign equity. In 1996, the largest 25 pension funds' share of all U.S. foreign equity was only at 28%, or $110.8 billion out of a total $397.7 billion.
"These ownership patterns show that considerable leverage can be exerted by investors over corporations in these countries," says Dr. Carolyn Brancato, author of the report and Director of The Conference Board's Global Corporate Governance Research Center. "The U.S. clearly has the economic clout and therefore the advantage in international markets to insist corporations adhere to high levels of shareholder accountability."
ADR GROWTH WILL INCREASE CLOUT OF U.S. INVESTORS
There has been a dramatic increase in total public and private ADR market activity in the U.S. from 1992 to 1998. The total number of public ADR (American Depositary Receipt --shares of non-US companies traded on U.S. stock exchanges, which enable investors to buy stock in non-US companies and get dividends and trade settlement in US dollars) programs has risen from 924 to 1,415 for year-end 1998. This means that, as more investors enter U.S. markets and put themselves under U.S. regulation, governance standards relating to accounting and disclosure will rise.
The number of U.S. exchange listed ADR programs has more than doubled between 1992 and 1998, from 215 to 484. There was also a substantial increase in the volume of listed ADRs from $125 billion in 1992 to more than four times that in 1998, to $555 billion.
"This increase is occurring despite the temporary dip in the rate of increase in the value of equity investments made outside the U.S. by U.S. institutional investors for the first time in the '90s in the third quarter of 1998," adds Brancato. "Fortunately this is expected to show up in the data as a temporary dip, but it does indicate how vulnerable countries are to a 'flight of capital' and therefore shows greater need to pay attention to corporate governance."
The rate of increase for U.S. equity holdings of foreign corporations slowed for the first time this decade from $436.3 billion in 1997 to $432.0 billion for the third quarter of 1998, but is expected to resume an increase in the fourth quarter so that year end 1998 equity investments will likely be somewhat higher than the 1997 level.
While U.S. holdings of foreign corporations declined for the majority of the world through third quarter of 1998, Latin America has been an exception. U.S. investment in that country's equities measured a substantial increase from $41 billion in 1997 to $54.1 billion, however, the data are likely to reveal the drop in the Latin American markets later in the year.
CONCENTRATION OF OWNERSHIP REVEALS DIFFERENCES
Concentration of ownership in the largest 25 companies shows important differences that also are indicative of the potential impact of investors on the corporate governance of their portfolio companies.
Outside the U.S. and U.K., there is greater control by non-financial institutions through cross-shareholdings and bank trusts. Therefore, ownership in the largest 25 companies is more highly concentrated in a fewer number of large investors in Germany, France, and Japan. But these investors are not likely to exercise U.S. style activist governance monitoring over the management of their portfolio companies. While they are now much more likely to have "relationships" with their portfolio companies, "closely-held" equity will be replaced by "global equity" which is certain to be accompanied by increased corporate governance pressures.
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Source: Institutional Investment Report: International Patterns of Institutional Investment Volume 3, #1, The Conference Board
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