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dollar was first devalued, some investors in U.S. securities had used

low-interest loans of Swiss francs to buy the securities. They lost

in the market as well as on both currency transactions. Some of the

so-called "loan funds", which promoted such investments, are said

to have disappeared altogether.

A French banker stated "the real difficulty for a French investor

to put money abroad is the fact that we have to think of the stock, the

industry, the country, and now the currency. This didn't exist a few

years ago. Floating currency has added to the risk and therefore re

duced foreign portfolio investment [relative to what it might otherwise

have been]."

A German banker said his organization required the potential for

growth in the value of a stock to be at least three times the potential

downside currency risk, or he would not recommend it.

Most portfolio managers assert they are not in the business of

making money on currency speculation. To the extent practicable (or

permitted by local rules), some managers actually buy U.S. stocks and

sell a comparable sum of dollars forward in order to hedge against any

short-term currency fluctuation. Currency speculation is impossible

to avoid altogether, however, and is in fact actively pursued by some


A British financier made the interesting comment that he might

choose a "national" over a "multi-national" U.S. oil company just to

maintain better control over currency diversification. The point

here, presumably, is that he at least knows he is investing in dollars

with the national company, whereas the currency exposure of multi

nationals is extremely difficult to assess.

The short and long-term economic outlook of potential investee

countries. Federal Reserve credit policy is widely believed to have a

significant and direct impact on security prices in general. Therefore,

the projected "money supply" is of special interest to investors in the


Economic projections can also influence portfolio composition as

well as level of investment. For example, some investors stated that

as the U.S. economy began to recover, this recovery would be re

flected first in retail trade stocks.

Yields, maturities and liquidity of secondary markets for

debt securities. Most of the U.S. corporation bonds which have been

purchased by foreigners have been those issued in the Euro-market.

This market lacks the disclosure protection of internal U.S. issues, and also lacks a seasoned secondary market. However, its advantages in

clude no withholding tax on interest, and a tendency to offer higher rates

of return and relatively short maturities (5 to 15 years). Many of the

foreign investors said that if the withholding tax on interest payments

were repealed, much of their investment in Eurodollar offerings would

be directed into U.S. domestic bonds. The main reason given was the

better secondary market. One investor said that the better market


ability was worth 10 to 25 basis points in yield. Some said that if

they traded in the domestic market, they might lengthen their maturity

schedules somewhat. One banker noted that for the same effective

yield, "we would buy a 25 General Electric domestic bond rather than

an 8 year Eurodollar Canadian utility." Not all agreed on this point,

however. A Swiss banker said, "We don't conceive of lending money

to anybody for more than ten years. We have seen too much political

instability to have that kind of foresight."

Any significant change in Governmental requirements for

disclosure of beneficial ownership. Corporate pension and trust

funds (investment trusts and unit trusts) are not sensitive to disclosure

of beneficial ownership. By and large, private investors in Canada,

100 basis points equals one per cent.

the U.K., and Japan are also indifferent to this subject. Many private

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investors elsewhere in the free world, however, insist upon privacy.

Many of the financiers interviewed said that any significant U.S.

regulatory change requiring increased disclosure of beneficial owner

ship would unquestionably shift large quantities of portfolio capital

out of the U.S. Tax considerations are rarely at issue when the question

of disclosure is involved. Some investors, in fact, will actually pay

additional taxes to preserve their anonymity. (This occurs when a

beneficial owner is domiciled in a country with a low treaty rate and

has his portfolio managed, for example, by a Swiss bank. In order to

qualify for the lower tax treatment, the bank would have to certify the

nationality of the client. The client may decline to certify his nation

ality and pay at the higher rate, if he is sensative about disclosure,

even though the risk of disclosure is small.)

The motivation for privacy may be literally a matter of life or

death to some. This is especially true for private investors in South

America and Southeast Asia. An advisor to wealthy Chinese individuals

made the following statement: "The Chinese in Southeast Asia live in

countries where they are not part of the native population. Indonesia,

Malaysia, Thailand and South Korea, for example, all have laws that

are basically anti-Chinese. The Chinese are worried that governments

may change rapidly. They don't want their families to contribute to

social welfare by forced repatriation of their money. If U.S. disclosure

laws are broadened, we would have to advise them not to invest in the


A foreign investor can use an intermediary such as a Swiss bank

to help keep his identity undisclosed. However, U.S. actions which pro

mote the use of such intermediaries tend to reduce foreign investment

in the U.S. relative to what it would have been if the investor had used

a U.S. bank. Whereas a U.S. bank will typically invest all trust assets

in the U.S., the Swiss bank today will place only 20-40% in the U.S.*

Private investors are not alone in being sensitive to disclosure.

Some governmental investors are, also. A U.S. bankers said the OPEC

countries, for example, "don't want some fourth world country to say

to them, 'would you plese lend us X billion of dollars; we know you

just invested Y billion in U.S. securities.''

Clearly, an individual investor could instruct the institution where to invest; but even without discretionary investment authority, the institution's recommendations are likely to be considered. Swiss institutions in particular tend to recommend international diversification of investment funds.

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