Almost thirty years ago, Bruno Solnik published an article entitled "Why not diver.
sify internationally rather than domestically?" in the Financial Analysts Journal
Uuly/August 1974). At the time, US. pension funds had never invested outside of
the United States. The situation was not very different in most other countries (except
Britain) in which international investment by pension funds and other institutional
investors was legally prohibited or regarded as exotic. Although European
banks and private investors have long been international investors by cultural heritage
as well as necessity (given the small size of most countries), institutional investors'
guidelines often limited or prohibited international investments. Because
institutional investors are large and sophisticated investors, their absence on the international
scene was significant. Various forms of capital and currency controls
constrained international investing. Few brokers or asset managers offered global
services. Most corporations only reported annual accounts in their local language,
and publicly available information was scarce and often unreliable. The combination
of poor information, low expertise, stringent regulations, and high costs inhibited
global investing. Thirty years later, the investment scene has changed dramatically.
Back in 1974, the world stock market capitalization stood below $1 trillion.
Since the publication of the first edition of this book in 1988, the world stock market
capitalization has passed the $25 trillion mark. Global debt markets have developed
and opened up to foreign investors. Derivatives markets on financial instruments
were in their infancy in 1974, but now provide major risk management
instruments in all countries. It is now common to see US. pension funds with 10
percent or 20 percent of their assets invested internationally; individual investors
have followed the trend, and the number of international mutual funds offered to
American investors is astonishing. Non-U.S. investors hold extensive international
investments. For example, ABP, the pension fund of Dutch civil servants and one of
the largest in the world with total assets well over $100 billion, decided in 1989 to
move from a purely domestic strategy to invest a growing percentage of its assets
abroad. Dutch institutional investors now have more than 30 percent of their assets