SECTIONI

INTRODUCTION

Section 6 of Public Law 93-479 requires the Secretary of the Treasury to

prepare a study of "The Institutional Aspects of Foreign Portfolio Investment in the United States." This report documents the field work accomplished under contact number TOS-76-2 as part of that study. Specifically, this report has been prepared to assist the Treasury Department in meeting the following requirements of PL 93-479:

"Investigate and review the nature, scope and magnitude of

foreign portfolio investment activities in the United States;
survey the reasons for foreign portfolio investment in the
United States;

identify the processes and mechanisms through which foreign
portfolio investment is made in the United States, the financing
methods used, and the effects of foreign portfolio investment on
American financial markets;

Note: In addition to this report, R. Shriver Associates was also retained by the Treasury Department to prepare a separate study entitled "Legal Aspects of Foreign Portfolio Investment in the United States." This study reports the "effect of Federal securities laws, rules, regulations, and policies on foreign portfolio investment activities in the United States" and a comparison of the "purpose and effect of United States, State and local laws, rules, regulations, programs, and policies on foreign portfolio investment in the United States with laws, rules, regulations, programs, and policies of selected nations".

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compare the foreign portfolio investment activities in the

United States with information available on the portfolio

investment activities of American investors abroad.

For purposes of this study, "portfolio" investments are defined as investments in U.S. financial assets which do not entail control or management of the enterprise. This study is based on interviews with institutional investors (such as a bank or insurance company operating for its own account, or the foreign equivalent of U.S. mutual funds), and institutional money managers or advisors acting on behalf of clients. The interviewing of individual investors was not considered

feasible.

The study team was comprised of four consultants with broad and varied backgrounds in the securities industry. The team interviewed 69 institutions in the U.S. and 98 abroad. Some interviews were conducted by one interviewer; most were conducted by two interviewers. The interviews included a wide cross-section of experts associated with foreign portfolio investments, such as investment bankers, broker/dealers, bank trust department officers, research analysts, securities custodians, portfolio managers, and lawyers. The types of firms represented in the interviews include banks, brokerage firms, selfadministered pension funds, insurance companies, investment advisory firms and mutual funds. The U.S. subsidiaries of foreign financial institutions were also important sources of information.

A breakdown of the 69 U.S. institutions interviewed follows:

Broken down by country, the 98 foreign interviews were as follows:

With few exceptions, most of the U.S. and foreign institutions with significant involvement in foreign portfolio investment in the U.S. participated in this survey. Board chairmen, presidents, partners and other senior management

personnel provided insights into overall policy and strategy, especially those

factors dealing with the level of investment in the U.S.; some (including foreigners) were well-prepared with specific advice and recommendations for Vice presidents and department heads described the

the U.S. Congress.

organizational relationships that have emerged to enable foreigners to obtain the necessary information for investment decision-making. Portfolio managers and senior analysts described the process of determining portfolio composition as well as the mechanisms of investment.

U.S. interviews were conducted

August-October, 1975. These interviews set the stage for the foreign interviews in the succeeding three months. To elicit the maximum cooperation and interest on the part of foreign institutions, some U.S. firms wrote letters to introduce the study team and, more importantly, provided their own endorsement of the project and the benefits of participating. The interviewers were welcomed by virtually every institution contacted; interviewees were open and candid in almost all instances. Interviews typically lasted from one to three hours each; some institutions arranged multiple interviews.

Most foreign interviews were scheduled well in advance; some extremely useful interviews were not planned at all, however, resulting from last minute suggestions during the scheduled interviews.