Bank mutual fund customers have been slow to succumb to the allure of international funds.
But Henry A. Frantzen, in charge of Federated Investors' new push in international investment, is looking to change that.
In April, Pittsburgh-based Federated created its first investment management division - Federated Global Research Corp., based in New York - and hired Mr. Frantzen to lead it as executive vice president.
Currently, the unit oversees only three international fund offerings - an equity fund with $242 million in assets, a fixed-income fund with $186 million, and a utility fund with $13 million.
But Mr. Frantzen says he plans to add four global offerings by January as he plays his part in making Federated a "one-stop shop" for fund investment.
"If you only have U.S. stocks, you're kind of buying a sector fund," Mr. Frantzen explained with a grin during breakfast near his downtown Manhattan office.
Federated Investors' banking customers seem to be getting the message.
"Five years ago our clients had about 1% of assets invested internationally," said Mark R. Gensheimer executive vice president and head of bank sales and marketing at Federated. "Now it's about 5%, and over three to five years we think it will be 15 to 20%."
That demand is fueling Federated's push into international investing. Federated Investors, the sixth-largest mutual fund company in the country, has collected more than $80 billion in assets, yet only $441 million have been invested in international offerings.
Executives at Federated are confident Mr. Frantzen will lead them to the first class of international money managers.
Mr. Frantzen has spent the past 17 years running international money funds, first for the College Retirement Equities Fund and later at New York-based Brown Brothers Harriman & Co., the country's largest private bank.
He engineered a portfolio change at CREF, the pension fund for university employees.
Using computerized simulations of historical data, Mr. Frantzen persuaded the CREF board that foreign holdings would lower overall portfolio risk and simultaneously increase total return.
With their approval, he took international assets from zero to more than $6 billion over seven years ending in 1987, and achieved nearly 23% returns on an annualized basis - almost 3% higher than the Lipper international fund average.
Mr. Frantzen's unit also replaced Fiduciary Trust International as investment adviser and portfolio managers of Federated's International Equity Fund on Sept. 1. Beginning in December, Mr. Frantzen's group will likewise run the portfolio of the Global Income Fund.
Mr. Frantzen said he expects to introduce four new global equity funds by January 1996, and by mid-1996, he plans to offer a total of nine new international equity funds. That would vault the firm to fourth place in the international equity fund sector - ahead of Merrill Lynch, which currently offers eight funds.
In a second phase, Mr. Frantzen's group will add fixed-income products to fill out a palette of emerging market, regional, and possibly even single-country funds.
Mr. Frantzen is now on a hiring binge, on track to build a 25-person international investment unit based in New York.
"We are totally committed," he said, citing the 10-year lease Federated just signed on 10,000 square feet of office space in Manhattan's financial district. "This is a huge undertaking."
Housing the new unit in New York instead of Pittsburgh was a logistical decision, Mr. Frantzen said. The international investing talent available here allowed him to build the unit quickly. He's staffing the unit he calls his "dream team," mostly with international investing veterans he's worked with over the years.
In rapid-fire succession this summer, he hired Drew J. Collins from Arnhold & S. Bleichroeder as senior vice president, Mark S. Kopinski from Twentieth Century Mutual Funds as vice president and equity portfolio manager for the Pacific Rim and India, and Frank Semack from the Omega Group as vice president to manage European equity portfolios.
Mr. Frantzen knows the executive talent market as well as the international securities markets. He joked that he could become an executive recruiter if he ever decided to abandon money management.
As one of international investing's pioneers, Mr. Frantzen recalls how tough it used to be to convince U.S. investors of the values beyond this country's shores.
As recently as 1970, most Americans drove cars made in Detroit, owned televisions and radios produced in domestic factories, and had wardrobes unadorned with foreign fashions, Mr. Frantzen said. In the same year, U.S. stocks accounted for 65% of the total capitalization of the world equity market.
But how the tables have turned. In 25 years, Americans have become addicted to imports, and foreign stock markets have traded places with the United States exchanges.
The U.S. stock market capitalization now accounts for just 35% of the world total while foreign securities stand at 65%, Mr. Frantzen explained.
That turnabout has raised the importance of investing abroad.
He has made a habit out of playing his own version of musical chairs to persuade remaining skeptics. Beginning with a standing audience, he asks each person who owns a foreign car to sit down. From there, it's who owns a foreign-made tie or watch. Soon, he says, most of the crowd is comfortably seated. If all else fails, he asks who owns a videocassette recorder and the game ends. In the process, the role of international commerce on his listeners' everyday lives goes from abstract to concrete.
Yet when it comes to investing overseas, Mr. Frantzen is surprised by how many Americans' perceptions of foreign opportunities still lag behind their shopping preferences. "Doesn't it make sense to share in the fruit of your own consumption," he asked rhetorically.